Perfect hedging in rough Heston models
Rough volatility models are known to reproduce the behavior of historical volatility data while at the same time fitting the volatility surface remarkably well, with very few parameters. However, managing the risks of derivatives under rough volatility can be intricate since the dynamics involve fra...
Gespeichert in:
| Veröffentlicht in: | arXiv.org 2017-03 |
|---|---|
| Hauptverfasser: | , |
| Format: | Artikel |
| Sprache: | eng |
| Schlagworte: | |
| Online-Zugang: | Volltext |
| Tags: |
Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
|
| container_end_page | |
|---|---|
| container_issue | |
| container_start_page | |
| container_title | arXiv.org |
| container_volume | |
| creator | Omar El Euch Rosenbaum, Mathieu |
| description | Rough volatility models are known to reproduce the behavior of historical volatility data while at the same time fitting the volatility surface remarkably well, with very few parameters. However, managing the risks of derivatives under rough volatility can be intricate since the dynamics involve fractional Brownian motion. We show in this paper that surprisingly enough, explicit hedging strategies can be obtained in the case of rough Heston models. The replicating portfolios contain the underlying asset and the forward variance curve, and lead to perfect hedging (at least theoretically). From a probabilistic point of view, our study enables us to disentangle the infinite-dimensional Markovian structure associated to rough volatility models. |
| format | Article |
| fullrecord | <record><control><sourceid>proquest</sourceid><recordid>TN_cdi_proquest_journals_2074100657</recordid><sourceformat>XML</sourceformat><sourcesystem>PC</sourcesystem><sourcerecordid>2074100657</sourcerecordid><originalsourceid>FETCH-proquest_journals_20741006573</originalsourceid><addsrcrecordid>eNpjYuA0MjY21LUwMTLiYOAtLs4yMDAwMjM3MjU15mRQC0gtSktNLlHISE1Jz8xLV8jMUyjKL03PUPBILS7Jz1PIzU9JzSnmYWBNS8wpTuWF0twMym6uIc4eugVF-YWlQJXxWfmlRXlAqXgjA3MTQwMDM1NzY-JUAQAgtC8b</addsrcrecordid><sourcetype>Aggregation Database</sourcetype><iscdi>true</iscdi><recordtype>article</recordtype><pqid>2074100657</pqid></control><display><type>article</type><title>Perfect hedging in rough Heston models</title><source>Free E- Journals</source><creator>Omar El Euch ; Rosenbaum, Mathieu</creator><creatorcontrib>Omar El Euch ; Rosenbaum, Mathieu</creatorcontrib><description>Rough volatility models are known to reproduce the behavior of historical volatility data while at the same time fitting the volatility surface remarkably well, with very few parameters. However, managing the risks of derivatives under rough volatility can be intricate since the dynamics involve fractional Brownian motion. We show in this paper that surprisingly enough, explicit hedging strategies can be obtained in the case of rough Heston models. The replicating portfolios contain the underlying asset and the forward variance curve, and lead to perfect hedging (at least theoretically). From a probabilistic point of view, our study enables us to disentangle the infinite-dimensional Markovian structure associated to rough volatility models.</description><identifier>EISSN: 2331-8422</identifier><language>eng</language><publisher>Ithaca: Cornell University Library, arXiv.org</publisher><subject>Brownian motion ; Markov chains ; Replication ; Volatility</subject><ispartof>arXiv.org, 2017-03</ispartof><rights>2017. This work is published under http://arxiv.org/licenses/nonexclusive-distrib/1.0/ (the “License”). Notwithstanding the ProQuest Terms and Conditions, you may use this content in accordance with the terms of the License.</rights><oa>free_for_read</oa><woscitedreferencessubscribed>false</woscitedreferencessubscribed></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><link.rule.ids>781,785</link.rule.ids></links><search><creatorcontrib>Omar El Euch</creatorcontrib><creatorcontrib>Rosenbaum, Mathieu</creatorcontrib><title>Perfect hedging in rough Heston models</title><title>arXiv.org</title><description>Rough volatility models are known to reproduce the behavior of historical volatility data while at the same time fitting the volatility surface remarkably well, with very few parameters. However, managing the risks of derivatives under rough volatility can be intricate since the dynamics involve fractional Brownian motion. We show in this paper that surprisingly enough, explicit hedging strategies can be obtained in the case of rough Heston models. The replicating portfolios contain the underlying asset and the forward variance curve, and lead to perfect hedging (at least theoretically). From a probabilistic point of view, our study enables us to disentangle the infinite-dimensional Markovian structure associated to rough volatility models.</description><subject>Brownian motion</subject><subject>Markov chains</subject><subject>Replication</subject><subject>Volatility</subject><issn>2331-8422</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2017</creationdate><recordtype>article</recordtype><sourceid>ABUWG</sourceid><sourceid>AFKRA</sourceid><sourceid>AZQEC</sourceid><sourceid>BENPR</sourceid><sourceid>CCPQU</sourceid><sourceid>DWQXO</sourceid><recordid>eNpjYuA0MjY21LUwMTLiYOAtLs4yMDAwMjM3MjU15mRQC0gtSktNLlHISE1Jz8xLV8jMUyjKL03PUPBILS7Jz1PIzU9JzSnmYWBNS8wpTuWF0twMym6uIc4eugVF-YWlQJXxWfmlRXlAqXgjA3MTQwMDM1NzY-JUAQAgtC8b</recordid><startdate>20170315</startdate><enddate>20170315</enddate><creator>Omar El Euch</creator><creator>Rosenbaum, Mathieu</creator><general>Cornell University Library, arXiv.org</general><scope>8FE</scope><scope>8FG</scope><scope>ABJCF</scope><scope>ABUWG</scope><scope>AFKRA</scope><scope>AZQEC</scope><scope>BENPR</scope><scope>BGLVJ</scope><scope>CCPQU</scope><scope>DWQXO</scope><scope>HCIFZ</scope><scope>L6V</scope><scope>M7S</scope><scope>PIMPY</scope><scope>PQEST</scope><scope>PQQKQ</scope><scope>PQUKI</scope><scope>PRINS</scope><scope>PTHSS</scope></search><sort><creationdate>20170315</creationdate><title>Perfect hedging in rough Heston models</title><author>Omar El Euch ; Rosenbaum, Mathieu</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-proquest_journals_20741006573</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2017</creationdate><topic>Brownian motion</topic><topic>Markov chains</topic><topic>Replication</topic><topic>Volatility</topic><toplevel>online_resources</toplevel><creatorcontrib>Omar El Euch</creatorcontrib><creatorcontrib>Rosenbaum, Mathieu</creatorcontrib><collection>ProQuest SciTech Collection</collection><collection>ProQuest Technology Collection</collection><collection>Materials Science & Engineering Collection</collection><collection>ProQuest Central (Alumni Edition)</collection><collection>ProQuest Central UK/Ireland</collection><collection>ProQuest Central Essentials</collection><collection>ProQuest Central</collection><collection>Technology Collection</collection><collection>ProQuest One Community College</collection><collection>ProQuest Central Korea</collection><collection>SciTech Premium Collection</collection><collection>ProQuest Engineering Collection</collection><collection>Engineering Database</collection><collection>Access via ProQuest (Open Access)</collection><collection>ProQuest One Academic Eastern Edition (DO NOT USE)</collection><collection>ProQuest One Academic</collection><collection>ProQuest One Academic UKI Edition</collection><collection>ProQuest Central China</collection><collection>Engineering Collection</collection></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Omar El Euch</au><au>Rosenbaum, Mathieu</au><format>book</format><genre>document</genre><ristype>GEN</ristype><atitle>Perfect hedging in rough Heston models</atitle><jtitle>arXiv.org</jtitle><date>2017-03-15</date><risdate>2017</risdate><eissn>2331-8422</eissn><abstract>Rough volatility models are known to reproduce the behavior of historical volatility data while at the same time fitting the volatility surface remarkably well, with very few parameters. However, managing the risks of derivatives under rough volatility can be intricate since the dynamics involve fractional Brownian motion. We show in this paper that surprisingly enough, explicit hedging strategies can be obtained in the case of rough Heston models. The replicating portfolios contain the underlying asset and the forward variance curve, and lead to perfect hedging (at least theoretically). From a probabilistic point of view, our study enables us to disentangle the infinite-dimensional Markovian structure associated to rough volatility models.</abstract><cop>Ithaca</cop><pub>Cornell University Library, arXiv.org</pub><oa>free_for_read</oa></addata></record> |
| fulltext | fulltext |
| identifier | EISSN: 2331-8422 |
| ispartof | arXiv.org, 2017-03 |
| issn | 2331-8422 |
| language | eng |
| recordid | cdi_proquest_journals_2074100657 |
| source | Free E- Journals |
| subjects | Brownian motion Markov chains Replication Volatility |
| title | Perfect hedging in rough Heston models |
| url | https://sfx.bib-bvb.de/sfx_tum?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&ctx_tim=2024-12-15T22%3A53%3A09IST&url_ver=Z39.88-2004&url_ctx_fmt=infofi/fmt:kev:mtx:ctx&rfr_id=info:sid/primo.exlibrisgroup.com:primo3-Article-proquest&rft_val_fmt=info:ofi/fmt:kev:mtx:book&rft.genre=document&rft.atitle=Perfect%20hedging%20in%20rough%20Heston%20models&rft.jtitle=arXiv.org&rft.au=Omar%20El%20Euch&rft.date=2017-03-15&rft.eissn=2331-8422&rft_id=info:doi/&rft_dat=%3Cproquest%3E2074100657%3C/proquest%3E%3Curl%3E%3C/url%3E&disable_directlink=true&sfx.directlink=off&sfx.report_link=0&rft_id=info:oai/&rft_pqid=2074100657&rft_id=info:pmid/&rfr_iscdi=true |