2024/03/18 by Bonesini, Ofelia, Jacquier, Antoine, Muguruza, Aitor
#60F05 #60F17 #60G15 #60G22 #91B25 #91G20 #91G60 #FOS: Economics and business #Mathematical Finance (q-fin.MF)
paper · doi:10.48550/arxiv.2403.11897
One the one hand, rough volatility has been shown to provide a consistent framework to capture the properties of stock price dynamics both under the historical measure and for pricing purposes. On the other hand, market price of volatility risk is a well-studied object in Financial Economics, and empirical estimates show it to be stochastic rather than deterministic. Starting from a rough volatility model under the historical measure, we take up this challenge and provide an analysis of the impact of such a non-deterministic risk for pricing purposes.