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The Rough Path-Dependent Volatility Model

Author

Listed:
  • Léo Parent

    (UP1 - Université Paris 1 Panthéon-Sorbonne, PRISM Sorbonne - Pôle de recherche interdisciplinaire en sciences du management - UP1 - Université Paris 1 Panthéon-Sorbonne)

Abstract

This paper introduces the rough path-dependent volatility (RPDV) model, which is structurally adapted to jointly capturing two major empirical features of volatility, namely its rough behavior and path-dependence. After presenting the model in its general form and its link with other existing models in the literature, we then present a Markovian multi-factor approximation of the RPDV model based on the work of Abi Jaber (2019). Finally, the paper focuses on a selection of RPDV model specifications that are interpretable from an economic point of view, leading to the formulation of different hypotheses about both asset price and volatility formation mechanisms.

Suggested Citation

  • Léo Parent, 2023. "The Rough Path-Dependent Volatility Model," Working Papers hal-04012310, HAL.
    • Handle: RePEc:hal:wpaper:hal-04012310
    DOI: 10.2139/ssrn.4270481
    as

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