A general framework for a joint calibration of VIX and VXX options

Martino Grasselli (), Andrea Mazzoran () and Andrea Pallavicini
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Martino Grasselli: University of Padova
Andrea Mazzoran: University of Padova

Annals of Operations Research, 2024, vol. 336, issue 1, No 2, 3-26

Abstract: 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; Local correlation; Stochastic volatility; Futures strategies; VIX; VXX; 65C05; 91G20; 91G60 (search for similar items in EconPapers)
Date: 2024
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Working Paper: A general framework for a joint calibration of VIX and VXX options (2021)
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DOI: 10.1007/s10479-023-05205-9

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