New option pricing models revolutionize financial forecasting with long memory.
Long memory stochastic volatility models can predict how volatility changes over time. Two new models based on existing ones were created to calculate option prices. By using math tools, the researchers found approximate solutions for option prices. They discovered that the fractional integration parameter affects option prices differently than the volatility of volatility parameter. Long memory models can handle short-term options and volatility skew better than short memory models.