The joint S&P 500/Vix smile calibration puzzle solved
SPX and Vix derivatives are modelled jointly in an arbitrage-free setting
CLICK HERE TO VIEW THE PDF
Since Vix options started trading in 2006, many researchers have tried to build a model that jointly and exactly calibrates to the prices of Standard & Poor’s 500 options, Vix futures and Vix options. In this article, Julien Guyon solves this long-standing puzzle by casting it as a discrete-time dispersion-constrained martingale transport problem, which he solves in a non-parametric way using Sinkhorn’s algorithm
Volatility indexes, such as the Vix index, do not just
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Banking
Market-making in spot precious metals
A market-making framework is extended to account for metal markets’ liquidity constraints
A comparison of FX fixing methodologies
FX fixing outcomes are mostly driven by length of calculation window
Backtesting correlated quantities
A technique to decorrelate samples and reach higher discriminatory power is presented
CVA sensitivities, hedging and risk
A probabilistic machine learning approach to CVA calculations is proposed
Bridging the gap risk reloaded: modelling wrong-way risk and leverage
A model extends the counterparty risk calculation to include nonlinear and complex portfolios
Weighting for leverage
A credit exposure model for leveraged collateralised counterparties is presented
Rethinking P&L attribution for options
A buy-side perspective on how to decompose the P&L of index options is presented
Volatility shape-shifters: arbitrage-free shaping of implied volatility surfaces
Manipulating implied volatility surfaces using optimal transport theory has several applications
