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

26 Pages Posted: 19 Feb 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

Banca IMI; Imperial College London - Department of Mathematics

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 modeling, we present a multi-factor stochastic local-volatility model able to jointly calibrate plain vanilla options both on VIX futures and VXX notes. 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

Banca IMI ( email )

Largo Mattioli 3
Milan, MI 20121
Italy
+39 02 7261 (Phone)

Imperial College London - Department of Mathematics ( email )

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

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