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Robustness and sensitivity analyses of rough Volterra stochastic volatility models

Author

Listed:
  • Jan Matas

    (University of West Bohemia)

  • Jan Pospíšil

    (University of West Bohemia)

Abstract

In this paper, we analyze the robustness and sensitivity of various continuous-time rough Volterra stochastic volatility models in relation to the process of market calibration. Model robustness is examined from two perspectives: the sensitivity of option price estimates and the sensitivity of parameter estimates to changes in the option data structure. The following sensitivity analysis consists of statistical tests to determine whether a given studied model is sensitive to changes in the option data structure based on the distribution of parameter estimates. Empirical study is performed on a data set consisting of Apple Inc. equity options traded on four different days in April and May 2015. In particular, the results for RFSV, rBergomi and $$\alpha $$ α RFSV models are provided and compared to the results for Heston, Bates, and AFSVJD models.

Suggested Citation

  • Jan Matas & Jan Pospíšil, 2023. "Robustness and sensitivity analyses of rough Volterra stochastic volatility models," Annals of Finance, Springer, vol. 19(4), pages 523-543, December.
    • Handle: RePEc:kap:annfin:v:19:y:2023:i:4:d:10.1007_s10436-023-00433-2
    DOI: 10.1007/s10436-023-00433-2
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    References listed on IDEAS

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    More about this item

    Keywords

    Volterra stochastic volatility; Rough volatility; Rough Bergomi model; Robustness analysis; Sensitivity analysis;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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