Modelling the Chinese crude oil futures returns through a skew‐geometric Brownian motion correlated with the market volatility index process for pricing financial options
Michele Bufalo,
Viviana Fanelli
Abstract:In this paper we model the dynamics of the Chinese crude oil futures returns by using a skew‐geometric Brownian motion correlated with the market volatility, which is taken as a square‐root stochastic process. We use the OVX index data as proxy for market volatility. We validate the proposed model in terms of accuracy of its calibrations through an in‐sample simulation. Instead, out‐of‐sample simulations are used to show that a correlated skew‐geometric Brownian motion is more appropriate for modelling the Chi… Show more
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