Related papers: A Market Model for VIX Futures
Prediction markets rely on liquidity to convert trades into informative prices, yet existing mechanisms fix liquidity ex ante. This restriction enforces a static trade-off between price responsiveness and worst-case loss despite inherently…
The paper studies sub and super-replication price bounds for contingent claims defined on general trajectory based market models. No prior probabilistic or topological assumptions are placed on the trajectory space, trading is assumed to…
This work's purpose is to understand the dynamics of limit order books in order-driven markets. We try to illustrate a dynamical trading mechanism attached to the microstructure of limit order markets. We capture the iterative nature of…
This paper develops a flexible and computationally efficient multivariate volatility model, which allows for dynamic conditional correlations and volatility spillover effects among financial assets. The new model has desirable properties…
We introduce a simple stochastic volatility model, whose novelty consists in taking into account hitting times of the asset price, and study the optimal stopping problem corresponding to a put option whose time horizon (after the asset…
This study provides a consistent and efficient pricing method for both Standard & Poor's 500 Index (SPX) options and the Chicago Board Options Exchange's Volatility Index (VIX) options under a multiscale stochastic volatility model. To…
We present a white-box, risk-sensitive framework for jointly hedging SPX and VIX exposures under transaction costs and regime shifts. The approach couples an arbitrage-free market teacher with a control layer that enforces safety as…
We investigate the joint dynamics of spot and implied volatility from an empirical perspective. We focus on the equity market with the SPX Index our underlying of choice. Using only observable quantities, we extract the instantaneous…
Optimal B-robust estimate is constructed for multidimensional parameter in drift coefficient of diffusion type process with small noise. Optimal mean-variance robust (optimal V -robust) trading strategy is find to hedge in mean-variance…
Local Volatility (LV) is a powerful tool for market modeling, enabling the generation of arbitrage-free scenarios calibrated to all European options. To implement LV, we need to interpolate and extrapolate option prices. This approach is…
We derive a semi-analytical pricing formula for European VIX call options under the Heston-Hawkes stochastic volatility model introduced in arXiv:2210.15343. This arbitrage-free model incorporates the volatility clustering feature by adding…
In commodity markets the convergence of futures towards spot prices, at the expiration of the contract, is usually justified by no-arbitrage arguments. In this article, we propose an alternative approach that relies on the expected profit…
We present an arbitrage-free non-parametric yield curve prediction model which takes the full (discretized) yield curve as state variable. We believe that absence of arbitrage is an important model feature in case of highly correlated data,…
Time variation and persistence are crucial properties of volatility that are often studied separately in energy volatility forecasting models. Here, we propose a novel approach that allows shocks with heterogeneous persistence to vary…
The VSTOXX index tracks the expected 30-day volatility of the EURO STOXX 50 equity index. Futures on the VSTOXX index can, therefore, be used to hedge against economic uncertainty. We investigate the effect of trader inventory on the price…
We model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the price…
In this paper we revisit Burnett (2021) \& Burnett and Williams (2021)'s notion of hedging valuation adjustment (HVA), originally intended to deal with dynamic hedging frictions such as transaction costs, in the direction of model risk. The…
In this paper we introduce a simple continuous-time asset pricing framework, based on general multi-dimensional diffusion processes, that combines semi-analytic pricing with a nonlinear specification for the market price of risk. Our…
This paper considers the case of pricing discretely-sampled variance swaps under the class of equity-interest rate hybridization. Our modeling framework consists of the equity which follows the dynamics of the Heston stochastic volatility…
We show that in an equity market model with Knightian uncertainty regarding the relative risk and covariance structure of its assets, the arbitrage function -- defined as the reciprocal of the highest return on investment that can be…