RT Journal Article SR Electronic T1 Long and Short Memory in the Risk-Neutral Pricing Process JF The Journal of Derivatives FD Institutional Investor Journals SP 71 OP 88 DO 10.3905/jod.2019.1.077 VO 26 IS 4 A1 Young Shin Kim A1 Danling Jiang A1 Stoyan Stoyanov YR 2019 UL https://pm-research.com/content/26/4/71.abstract AB This article proposes a semi-martingale approximation to a fractional Lévy process that is capable of capturing long and short memory in the stochastic process together with fat tails. The authors use the semi-martingale process in option pricing and empirically compare its performance to other option pricing models, including a stochastic volatility Lévy process. They contribute to the empirical literature by being the first to report the implied Hurst index computed from observed option prices using the Lévy process model. Calibrating the implied Hurst index of S&P 500 option prices in a period that covers the 2008 financial crisis, they find that the risk-neutral measure is characterized by a short memory in turbulent markets and a long memory in calm markets.TOPICS: Options, statistical methods, performance measurement