A General Framework for a Joint Calibration of VIX and VXX Options

24 Pages Posted: 19 Feb 2021 Last revised: 14 Jun 2021

See all articles by Martino Grasselli

Martino Grasselli

University of Padova - Department of Mathematics; Léonard de Vinci Pôle Universitaire, Research Center

Andrea Mazzoran

affiliation not provided to SSRN

Andrea Pallavicini

Intesa Sanpaolo

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

Grasselli, Martino and Mazzoran, Andrea and Pallavicini, Andrea, A General Framework for a Joint Calibration of VIX and VXX Options (December 15, 2020). Available at SSRN: https://ssrn.com/abstract=3749995 or http://dx.doi.org/10.2139/ssrn.3749995

Martino Grasselli (Contact Author)

University of Padova - Department of Mathematics ( email )

Via Trieste 63
Padova, Padova
Italy

Léonard de Vinci Pôle Universitaire, Research Center ( email )

Paris La Défense
France

Andrea Mazzoran

affiliation not provided to SSRN

Andrea Pallavicini

Intesa Sanpaolo ( email )

Largo Mattioli 3
Milan, MI 20121
Italy

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
157
Abstract Views
685
Rank
339,776
PlumX Metrics