On VIX Futures in the Rough Bergomi Model

21 Pages Posted: 19 Jan 2017

See all articles by Antoine (Jack) Jacquier

Antoine (Jack) Jacquier

Imperial College London; The Alan Turing Institute

Claude Martini

Zeliade Systems

Aitor Muguruza

Imperial College London; Kaiju Capital Management

Date Written: January 16, 2017

Abstract

The rough Bergomi model introduced by Bayer, Friz and Gatheral has been outperforming conventional Markovian stochastic volatility models by reproducing implied volatility smiles in a very realistic manner, in particular for short maturities. We investigate here the dynamics of the VIX and the forward variance curve generated by this model, and develop efficient pricing algorithms for VIX futures and options. We further analyse the validity of the rough Bergomi model to jointly describe the VIX and the SPX, and present a joint calibration algorithm based on the hybrid scheme by Bennedsen, Lunde and Pakkanen.

Keywords: Implied volatility, fractional Brownian motion, rough Bergomi, VIX Futures, VIX smile

JEL Classification: G20, G99, G60, B25

Suggested Citation

Jacquier, Antoine and Martini, Claude and Muguruza, Aitor, On VIX Futures in the Rough Bergomi Model (January 16, 2017). Available at SSRN: https://ssrn.com/abstract=2900248 or http://dx.doi.org/10.2139/ssrn.2900248

Antoine Jacquier

Imperial College London ( email )

South Kensington Campus
London SW7 2AZ, SW7 2AZ
United Kingdom

HOME PAGE: http://wwwf.imperial.ac.uk/~ajacquie/

The Alan Turing Institute ( email )

British Library, 96 Euston Road
London, NW12DB
United Kingdom

Claude Martini

Zeliade Systems ( email )

Paris
France

HOME PAGE: http://www.zeliade.com

Aitor Muguruza (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Kaiju Capital Management ( email )

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