Market calibration under a long memory stochastic volatility model

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F49777513%3A23520%2F16%3A43930083" target="_blank" >RIV/49777513:23520/16:43930083 - isvavai.cz</a>
Result on the web
<a href="http://dx.doi.org/10.1080/1350486X.2017.1279977" target="_blank" >http://dx.doi.org/10.1080/1350486X.2017.1279977</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.1080/1350486X.2017.1279977" target="_blank" >10.1080/1350486X.2017.1279977</a>

Result language
angličtina
Original language name
Market calibration under a long memory stochastic volatility model
Original language description
In this article, we study a long memory stochastic volatility model (LSV), under which stock prices follow a jump-diffusion stochastic process and its stochastic volatility is driven by a continuous-time fractional process that attains a long memory. LSV model should take into account most of the observed market aspects and unlike many other approaches, the volatility clustering phenomenon is captured explicitly by the long memory parameter. Moreover, this property has been reported in realized volatility time-series across different asset classes and time periods. In the first part of the article, we derive an alternative formula for pricing European securities. The formula enables us to effectively price European options and to calibrate the model to a given option market. In the second part of the article, we provide an empirical review of the model calibration. For this purpose, a set of traded FTSE 100 index call options is used and the long memory volatility model is compared to a popular pricing approach - the Heston model. To test stability of calibrated parameters and to verify calibration results from previous data set, we utilize multiple data sets from NYSE option market on Apple Inc. stock.
Czech name
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Czech description
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Type
J<sub>x</sub> - Unclassified - Peer-reviewed scientific article (Jimp, Jsc and Jost)
CEP classification
AH - Economics
OECD FORD branch
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Project
<a href="/en/project/GA14-11559S" target="_blank" >GA14-11559S: Analysis of Fractional Stochastic Volatility Models and their Grid Implementation</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year
2016
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

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