Microstructural Foundation of Rough Log-Normal Volatility Models
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arXiv
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| Main Authors: | , , , |
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| Format: | Preprint |
| Published: |
2026
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| _version_ | 1866915859853737984 |
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| author | Hager, Paul P. Horst, Ulrich Wagenhofer, Thomas Xu, Wei |
| author_facet | Hager, Paul P. Horst, Ulrich Wagenhofer, Thomas Xu, Wei |
| contents | We establish a microstructural foundation of the rough Bergomi model. Specifically, we consider a sequence of order driven financial market models where orders to buy or sell an asset arrive according to a Poisson process and have a long lasting impact on volatility. Using a recently established C-tightness result for càdlàg processes we establish the weak convergence of the price-volatility process to a log-normal rough volatility model. Our weak convergence result is accompanied by weak error rates that employ a recently established Clark-Ocone formula for Poisson processes and turn our microstructure model into viable alternative to classical simulation schemes. The weak error rates strongly hinge on Poisson arrival dynamics and are novel to the rough microstructure literature. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2603_13170 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Microstructural Foundation of Rough Log-Normal Volatility Models Hager, Paul P. Horst, Ulrich Wagenhofer, Thomas Xu, Wei Mathematical Finance 60G55, 60G22, 60L90 (Primary), 60F05 (Secondary) We establish a microstructural foundation of the rough Bergomi model. Specifically, we consider a sequence of order driven financial market models where orders to buy or sell an asset arrive according to a Poisson process and have a long lasting impact on volatility. Using a recently established C-tightness result for càdlàg processes we establish the weak convergence of the price-volatility process to a log-normal rough volatility model. Our weak convergence result is accompanied by weak error rates that employ a recently established Clark-Ocone formula for Poisson processes and turn our microstructure model into viable alternative to classical simulation schemes. The weak error rates strongly hinge on Poisson arrival dynamics and are novel to the rough microstructure literature. |
| title | Microstructural Foundation of Rough Log-Normal Volatility Models |
| topic | Mathematical Finance 60G55, 60G22, 60L90 (Primary), 60F05 (Secondary) |
| url | https://arxiv.org/abs/2603.13170 |