FORECASTING VOLATILITY WITH THE MULTIFRACTAL RANDOM WALK MODEL |
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Authors: | Jean Duchon Raoul Robert Vincent Vargas |
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Institution: | 1. Institut Fourier, Université Grenoble;2. Université Paris‐Dauphine, Ceremade |
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Abstract: | We study the problem of forecasting volatility for the multifractal random walk model. In order to avoid the ill‐posed problem of estimating the correlation length T of the model, we introduce a limiting object defined in a quotient space; formally, this object is an infinite range log volatility. For this object and the nonlimiting object, we obtain precise prediction formulas and we apply them to the problem of forecasting volatility and pricing options with the MRW model in the absence of a reliable estimate of σ and T. |
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Keywords: | random measures Gaussian processes prediction theory multifractal processes |
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