{"title":"Risk premium and rough volatility","authors":"Ofelia Bonesini, Antoine Jacquier, Aitor Muguruza","doi":"arxiv-2403.11897","DOIUrl":null,"url":null,"abstract":"One the one hand, rough volatility has been shown to provide a consistent\nframework to capture the properties of stock price dynamics both under the\nhistorical measure and for pricing purposes. On the other hand, market price of\nvolatility risk is a well-studied object in Financial Economics, and empirical\nestimates show it to be stochastic rather than deterministic. Starting from a\nrough volatility model under the historical measure, we take up this challenge\nand provide an analysis of the impact of such a non-deterministic risk for\npricing purposes.","PeriodicalId":501084,"journal":{"name":"arXiv - QuantFin - Mathematical Finance","volume":"199 1","pages":""},"PeriodicalIF":0.0000,"publicationDate":"2024-03-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"arXiv - QuantFin - Mathematical Finance","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/arxiv-2403.11897","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0
Abstract
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.
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