ADOL: Markovian approximation of a rough lognormal model

Peter Carr, Andrey Itkin
28 Nov 2019

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Peter Carr and Andrey Itkin apply a Markovian approximation of the fractional Brownian motion, known as the Dobrić-Ojeda process, to the fractional stochastic volatility model, where the instantaneous variance is modelled using a lognormal process with drift and fractional diffusion

Gatheral et al (2014) discovered that historical volatility time series exhibit behaviour that is much rougher than that of a Brownian motion for a wide range of assets. These authors

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