Empirical study based on the model of rough fractional stochastic volatility (RFSV)

Abstract

To estimate the parameters of the model of option pricing based on the model of rough fractional stochastic volatility (RFSV), we have carried out the empirical analysis during our study on the pricing of SSE 50ETF options in China. First, we have estimated the parameters of option pricing model by adopting the Monte Carlo simulation. Subsequently, we have empirically examined the pricing performance of the RFSV model by adopting the SSE 50ETF option price from January 2019 to December 2020. Our research findings indicate that by leveraging the RFSV model, we are able to attain a more accurate and stable level of option pricing than the conventional Black–Scholes (B-S) model on constant volatility. The errors of option pricing incurred by the B-S model proved to be larger and exhibited higher volatility, revealing the significant impact imposed by stochastic volatility on option pricing.