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A general framework for a joint calibration of VIX and VXX options

Author

Listed:
  • Martino Grasselli

    (University of Padova
    Léonard de Vinci Pôle Universitaire)

  • Andrea Mazzoran

    (University of Padova)

  • Andrea Pallavicini

    (Intesa Sanpaolo)

Abstract

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 commodity smile modelling, we present a multi-factor stochastic-local volatility model that is able to jointly calibrate plain-vanilla options both on VIX futures and VXX notes, thus going beyond the failure of purely stochastic or simply local-volatility models. We discuss numerical results on real market data by highlighting the impact of model parameters on implied volatilities.

Suggested Citation

  • Martino Grasselli & Andrea Mazzoran & Andrea Pallavicini, 2024. "A general framework for a joint calibration of VIX and VXX options," Annals of Operations Research, Springer, vol. 336(1), pages 3-26, May.
    • Handle: RePEc:spr:annopr:v:336:y:2024:i:1:d:10.1007_s10479-023-05205-9
    DOI: 10.1007/s10479-023-05205-9
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