Related papers: Implied volatility surface predictability: the cas…
The Nelson-Siegel framework is employed to model the term structure of commodity futures prices. Exploiting the information embedded in the level, slope and curvature parameters, we develop novel investment strategies that assume short-term…
It is a market practice to express market-implied volatilities in some parametric form. The most popular parametrizations are based on or inspired by an underlying stochastic model, like the Heston model (SVI method) or the SABR model (SABR…
This paper investigates how realized and option implied volatilities are related to the future quantiles of commodity returns. Whereas realized volatility measures ex-post uncertainty, volatility implied by option prices reveals the…
We propose a deep hedging framework for index option portfolios, grounded in a realistic market simulator that captures the joint dynamics of S&P 500 returns and the full implied volatility surface. Our approach integrates surface-informed…
Option prices encode the market's collective outlook through implied density and implied volatility. An explicit link between implied density and implied volatility translates the risk-neutrality of the former into conditions on the latter…
The discrepancy between realized volatility and the market's view of volatility has been known to predict individual equity options at the monthly horizon. It is not clear how this predictability depends on a forecast's ability to predict…
We study specific nonlinear transformations of the Black-Scholes implied volatility to show remarkable properties of the volatility surface. Model-free bounds on the implied volatility skew are given. Pricing formulas for the European…
We propose a new model for the forecasting of both the implied volatility surfaces and the underlying asset price. In the spirit of Guyon and Lekeufack (2023) who are interested in the dependence of volatility indices (e.g. the VIX) on the…
In financial terms, an implied volatility surface can be described by its term structure, its skewness and its overall volatility level. We use a PCA variational auto-encoder model to perfectly represent these descriptors into a latent…
In this paper, we implement and test two types of market-based models for European-type options, based on the tangent Levy models proposed recently by R. Carmona and S. Nadtochiy. As a result, we obtain a method for generating Monte Carlo…
In this study, we predict next-day movements of stock end-of-day implied volatility using random forests. Through an ablation study, we examine the usefulness of different sources of predictors and expose the value of attention and…
This paper investigates how the conditional quantiles of future returns and volatility of financial assets vary with various measures of ex-post variation in asset prices as well as option-implied volatility. We work in the flexible…
Accurately forecasting the price of oil, the world's most actively traded commodity, is of great importance to both academics and practitioners. We contribute by proposing a functional time series based method to model and forecast oil…
In informationally efficient financial markets, option prices and this implied volatility should immediately be adjusted to new information that arrives along with a jump in underlying's return, whereas gradual changes in implied volatility…
The local volatility model is a widely used for pricing and hedging financial derivatives. While its main appeal is its capability of reproducing any given surface of observed option prices---it provides a perfect fit---the essential…
The implied volatility smile surface is the basis of option pricing, and the dynamic evolution of the option volatility smile surface is difficult to predict. In this paper, attention mechanism is introduced into LSTM, and a volatility…
We formulate and analyze an inverse problem using derivatives prices to obtain an implied filtering density on volatility's hidden state. Stochastic volatility is the unobserved state in a hidden Markov model (HMM) and can be tracked using…
The implied volatility surface (IVS) is a fundamental building block in computational finance. We provide a survey of methodologies for constructing such surfaces. We also discuss various topics which can influence the successful…
In this study, we constructed daily high-frequency sentiment data and used the VAR method to attempt to predict the next day's implied volatility surface. We utilized 630,000 text data entries from the East Money Stock Forum from 2014 to…
We propose a two-step framework for predicting the implied volatility surface over time without static arbitrage. In the first step, we select features to represent the surface and predict them over time. In the second step, we use the…