Anomalous Diffusions in Option Prices: Connecting Trade Duration and the Volatility Term Structure

A. Jacquier; L. Torricelli

DOI:10.2139/ssrn.3434073

Corpus ID: 199511192

Anomalous Diffusions in Option Prices: Connecting Trade Duration and the Volatility Term Structure

@article{Jacquier2019AnomalousDI,
  title={Anomalous Diffusions in Option Prices: Connecting Trade Duration and the Volatility Term Structure},
  author={A. Jacquier and L. Torricelli},
  journal={Econometric Modeling: Capital Markets - Asset Pricing eJournal},
  year={2019}
}

A. Jacquier, L. Torricelli

Published 2019

Economics

Econometric Modeling: Capital Markets - Asset Pricing eJournal

Anomalous diffusions arise as scaling limits of continuous-time random walks (CTRWs) whose innovation times are distributed according to a power law. The impact of a non-exponential waiting time does not vanish with time and leads to different distribution spread rates compared to standard models. In financial modelling this has been used to accommodate for random trade duration in the tick-by-tick price process. We show here that anomalous diffusions are able to reproduce the market behaviour… CONTINUE READING

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