Related papers: The implied volatility surface (also) is path-depe…

This paper presents static and dynamic versions of univariate, multivariate, and multilevel functional time-series methods to forecast implied volatility surfaces in foreign exchange markets. We find that dynamic functional principal…

In the information-based approach to asset pricing the market filtration is modelled explicitly as a superposition of signals concerning relevant market factors and independent noise. The rate at which the signal is revealed to the market…

This paper studies the joint role of long-memory dynamics,rough-volatility behavior, and persistence-based forecasting features in equity volatility modeling. We combine semiparametric long-memory estimation, rough-volatility diagnostics,…

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…

Exact relationships between the short time-to-maturity ATM implied volatility slope, the (dual) volatility swap, and the (dual) zero vanna implied volatility are given.

In equity and foreign exchange markets the risk-neutral dynamics of the underlying asset are commonly represented by stochastic volatility models with jumps. In this paper we consider a dense subclass of such models and develop analytically…

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…

Derivatives on the Chicago Board Options Exchange volatility index (VIX) have gained significant popularity over the last decade. The pricing of VIX derivatives involves evaluating the square root of the expected realised variance which…

Time-varying parameters (TVPs) models are frequently used in economics to capture structural change. I highlight a rather underutilized fact -- that these are actually ridge regressions. Instantly, this makes computations, tuning, and…

The Chicago Board Options Exchange (CBOE) Volatility Index, VIX, is calculated based on prices of out-of-the-money put and call options on the S&P 500 index (SPX). Sometimes called the "investor fear gauge," the VIX is a measure of the…

This paper proposes to model asset price dynamics with a mixture of diffusion processes where the instantaneous volatility of the underlying diffusion process contains a random vector. The marginal probability distributions of the proposed…

Implied volatility IV is a key metric in financial markets, reflecting market expectations of future price fluctuations. Research has explored IV's relationship with moneyness, focusing on its connection to the implied Hurst exponent H. Our…

We develop a variant of rough path theory tailor-made for analyzing a class of financial asset price models known as rough volatility models. As an application, we prove a pathwise large deviation principle (LDP) for a certain class of…

Exact path simulation of the underlying state variable is of great practical importance in simulating prices of financial derivatives or their sensitivities when there are no analytical solutions for their pricing formulas. However, in…

We introduce a class of randomly time-changed fast mean-reverting stochastic volatility models and, using spectral theory and singular perturbation techniques, we derive an approximation for the prices of European options in this setting.…

In this paper, we extend the first-order asymptotics analysis of Fouque et al. to general path-dependent financial derivatives using Dupire's functional Ito calculus. The main conclusion is that the market group parameters calibrated to…

Most models for barrier pricing are designed to let a market maker tune the model-implied covariance between moves in the asset spot price and moves in the implied volatility skew. This is often implemented with a local…

A variance swap is a derivative with a path-dependent payoff which allows investors to take positions on the future variability of an asset. In the idealised setting of a continuously monitored variance swap written on an asset with…

We present a high-level framework that explains why, in practice, different pricing models calibrated to the same vanilla surface tend to produce similar valuations for exotic derivatives. Our approach acts as an overlay on the Monte Carlo…

We construct a statistical indicator for the detection of short-term asset price bubbles based on the information content of bid and ask market quotes for plain vanilla put and call options. Our construction makes use of the martingale…