Abstract
We derive a higher-order asymptotic expansion of the conditional characteristic function of the increment of an Itô semimartingale over a shrinking time interval. The spot characteristics of the Itô semimartingale are allowed to have dynamics of general form. In particular, their paths can be rough, that is, exhibit local behavior like that of a fractional Brownian motion, while at the same time have jumps with arbitrary degree of activity. The expansion result shows the distinct roles played by the different features of the spot characteristics dynamics. As an application of our result, we construct a nonparametric estimator of the Hurst parameter of the diffusive volatility process from portfolios of short-dated options written on an underlying asset.
| Original language | English |
|---|---|
| Pages (from-to) | 1789-1810 |
| Number of pages | 22 |
| Journal | Bernoulli |
| Volume | 31 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - Aug 2025 |
Bibliographical note
Publisher Copyright:© 2025 ISI/BS.
Keywords
- Asymptotic expansion
- characteristic function
- fractional Brownian motion
- Hurst parameter
- infinite variation jumps
- Itô semimartingale
- options
- rough volatility