A General Framework for a Joint Calibration of VIX and VXX Options
24 Pages Posted: 19 Feb 2021 Last revised: 14 Jun 2021
Date Written: December 15, 2020
Abstract
We analyze the VIX futures market with a focus on the exchange-traded notes
written on such contracts, in particular we investigate the VXX notes tracking the
short-end part of the futures term structure. Inspired by recent developments in
commodity smile modelling, we present a multi-factor stochastic-local volatility model
that is able to jointly calibrate plain vanilla options both on VIX futures and VXX
notes, thus going beyond the failure of purely stochastic or simply local volatility
models. We discuss numerical results on real market data by highlighting the impact
of model parameters on implied volatilities.
Keywords: Local volatility, Stochastic volatility, VIX, VIX futures, VXX.
JEL Classification: C63, G13
Suggested Citation: Suggested Citation