High-frequency dynamics of the implied volatility surface
Trading and Market Microstructure
2020-12-22 v1 Statistical Finance
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.
Cite
@article{arxiv.2012.10875,
title = {High-frequency dynamics of the implied volatility surface},
author = {Bastien Baldacci},
journal= {arXiv preprint arXiv:2012.10875},
year = {2020}
}