2022/12/15 by Peter K. Friz, Friz, Peter K., Thomas Wagenhofer +1
Economics, Econometrics and Finance · #60F10 (Primary) 91G20 (Secondary) #Complex Systems and Time Series Analysis #Economic theories and models #FOS: Economics and business #FOS: Mathematics #Pricing of Securities (q-fin.PR) #Probability (math.PR) #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.2212.07817
openalex publication_date 2022/12/15 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
In previous works Avellaneda et al. pioneered the pricing and hedging of index options - products highly sensitive to implied volatility and correlation assumptions - with large deviations methods, assuming local volatility dynamics for all components of the index. We here present an extension applicable to non-Markovian dynamics and in particular the case of rough volatility dynamics.