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Forward variance dynamics : Bergomi's model revisited
Uppsala University, Disciplinary Domain of Science and Technology, Mathematics and Computer Science, Department of Mathematics.
2013 (English)In: Applied Mathematical Finance, ISSN 1350-486X, E-ISSN 1433-4313Article in journal (Refereed) Published
Abstract [en]

n this article, we propose an arbitrage-free modeling framework for the joint dynamics of forward variance along with the underlying index, which can be seen as a combination of the two approaches proposed by Bergomi. The difference between our modeling framework and the Bergomi models (2008), is mainly the ability to compute the prices of VIX futures and options by using semi-analytic formulas. Also, we can express the sensitivities of the prices of VIX futures and options with respect to the model parameters, which enables us to propose an efficient and easy calibration to the VIX futures and options. The calibrated model allows to Delta- hedge VIX options by trading in VIX futures, the corresponding hedge ratios can be computed analytically 

Place, publisher, year, edition, pages
2013.
National Category
Probability Theory and Statistics
Identifiers
URN: urn:nbn:se:uu:diva-218687OAI: oai:DiVA.org:uu-218687DiVA: diva2:696557
Available from: 2014-02-14 Created: 2014-02-14 Last updated: 2017-12-06

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