High-frequency dynamics of the implied volatility surface

Bastien Baldacci

Papers from arXiv.org

Abstract: We present a Hawkes modeling of the volatility surface's high-frequency dynamics and show how the Hawkes kernel coefficients govern the surface's skew and convexity. We provide simple sufficient conditions on the coefficients to ensure no-arbitrage opportunities of the surface. Moreover, these conditions reduce the number of the kernel's parameters to estimate. Finally, we show that at the macroscopic level, the surface is driven by a sum of risk factors whose volatility processes are rough.

Date: 2020-12
New Economics Papers: this item is included in nep-rmg
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