EconPapers    
Economics at your fingertips  
 

Volatility options in rough volatility models

Blanka Horvath, Antoine Jacquier and Peter Tankov

Papers from arXiv.org

Abstract: We discuss the pricing and hedging of volatility options in some rough volatility models. First, we develop efficient Monte Carlo methods and asymptotic approximations for computing option prices and hedge ratios in models where log-volatility follows a Gaussian Volterra process. While providing a good fit for European options, these models are unable to reproduce the VIX option smile observed in the market, and are thus not suitable for VIX products. To accommodate these, we introduce the class of modulated Volterra processes, and show that they successfully capture the VIX smile.

New Economics Papers: this item is included in nep-rmg
Date: 2018-02, Revised 2019-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://arxiv.org/pdf/1802.01641 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1802.01641

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().

 
Page updated 2019-01-31
Handle: RePEc:arx:papers:1802.01641