2021/07/13 by Emmanuel Coffie, Coffie, Emmanuel, Sindre Duedahl +3
Economics, Econometrics and Finance · #Stochastic processes and financial applications #Complex Systems and Time Series Analysis #Financial Risk and Volatility Modeling
paper · pdf · doi:10.48550/arxiv.2107.06022
In this paper, we show the existence of unique Malliavin differentiable solutions to SDE`s driven by a fractional Brownian motion with Hurst parameter H<1/2 and singular, unbounded drift vector fields, for which we also prove a stability result. Further, using the latter results, we propose a stock price model with rough and correlated volatility, which also allows for capturing regime switching effects. Finally, we also derive a Bismut-Elworthy-Li formula with respect to our stock price model for certain classes of vector fields.