A Practical Guide to Quantitative Volatility Trading

327 Pages Posted: 15 Jan 2016 Last revised: 10 Mar 2016

See all articles by Daniel Alexandre Bloch

Daniel Alexandre Bloch

Université Paris VI Pierre et Marie Curie

Date Written: January 15, 2016

Abstract

Financial time series exhibit multifractal scaling behaviour indicating a complex behaviour with long-range time correlations manifested on different intrinsic time scales. Such a behaviour typically points to the presence of recurrent economic cycles, crises, large fluctuations, and other nonlinear phenomena. We review quantitative volatility trading in classical economics before discussing some necessary modifications needed to account for multifractality in inefficient markets. We then present an arbitrage-free model of implied volatility surface, which is robust, easy to implement and computationally fast, enabling for systematic volatility trading. We consider risk management and discuss some applications on variance swaps and dispersion trading.

Keywords: Systematic volatility trading, Arbitrage-free model of implied volatility surface, Multifractal markets

Suggested Citation

Bloch, Daniel Alexandre, A Practical Guide to Quantitative Volatility Trading (January 15, 2016). Available at SSRN: https://ssrn.com/abstract=2715517 or http://dx.doi.org/10.2139/ssrn.2715517

Daniel Alexandre Bloch (Contact Author)

Université Paris VI Pierre et Marie Curie ( email )

175 Rue du Chevaleret
Paris, 75013
France

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