
Julien Guyon – 01/08/23
Quantcast – a Risk.net Cutting Edge podcast
How to Pick a Good Pricing Model
Rough volatility models generate a power low term structure of add the money skew at least for short maturity. So when we observe this power low decay with an alpha close to 0.5, that actually means a herst exponent h close to 0 - which is the typical value of earth's exponent in rough volatility studies. And so if it's a power low for all maturity, short and long, then you will want a pricing model that generates these things. If it is something else, then you'll prefer another model that will produce this something else.
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