Hedging in long memory stochastic volatility models

Long memory stochastic volatility (LMSV) models have been used to explain the persistence of volatility in the market. In these models, the volatility process is often described by a fractional Ornstein-Uhlenbeck process with... [ view full abstract ]

Long memory stochastic volatility (LMSV) models have been used to explain the persistence of volatility in the market. In these models, the volatility process is often described by a fractional Ornstein-Uhlenbeck process with Hurst index H, where H>1/2. The goal of this talk is to discuss hedging in the fractional stochastic volatility framework. In particular, we review a Delta-hedging strategy under this framework and we determine when the option is underhedged, overhedged or perfectly hedged.