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dc.contributor.author
Acciaio, Beatrice
dc.contributor.author
Guyon, Julien
dc.date.accessioned
2021-03-04T14:37:29Z
dc.date.available
2021-01-28T13:44:54Z
dc.date.available
2021-03-04T14:29:54Z
dc.date.available
2021-03-04T14:37:29Z
dc.date.issued
2020
dc.identifier.issn
1945-497X
dc.identifier.other
10.1137/19m129303x
en_US
dc.identifier.uri
http://hdl.handle.net/20.500.11850/466337
dc.description.abstract
It has often been stated that, within the class of continuous stochastic volatility models calibrated to vanillas, the price of a VIX future is maximized by the Dupire local volatility model. In this article we prove that this statement is incorrect: we build a continuous stochastic volatility model in which a VIX future is strictly more expensive than in its associated local volatility model. More generally, in our model, strictly convex payoffs on a squared VIX are strictly cheaper than in the associated local volatility model. This corresponds to an inversion of convex ordering between local and stochastic variances, when moving from instantaneous variances to squared VIX, as convex payoffs on instantaneous variances are always cheaper in the local volatility model. We thus prove that this inversion of convex ordering, which is observed in the S&P 500 market for short VIX maturities, can be produced by a continuous stochastic volatility model. We also prove that the model can be extended so that, as suggested by market data, the convex ordering is preserved for long maturities. © 2020, Society for Industrial and Applied Mathematics
en_US
dc.language.iso
en
en_US
dc.publisher
Society for Industrial and Applied Mathematics
en_US
dc.subject
VIX
en_US
dc.subject
VIX futures
en_US
dc.subject
Stochastic volatility
en_US
dc.subject
Local volatility
en_US
dc.subject
Convex order
en_US
dc.subject
Inversion of convex ordering
en_US
dc.title
Short Communication: Inversion of Convex Ordering: Local Volatility Does Not Maximize the Price of VIX Futures
en_US
dc.type
Journal Article
dc.date.published
2020-02-20
ethz.journal.title
SIAM Journal on Financial Mathematics
ethz.journal.volume
11
en_US
ethz.journal.issue
1
en_US
ethz.pages.start
SC1
en_US
ethz.pages.end
SC13
en_US
ethz.publication.place
Philadelphia, PA
en_US
ethz.publication.status
published
en_US
ethz.leitzahl
ETH Zürich::00002 - ETH Zürich::00012 - Lehre und Forschung::00007 - Departemente::02000 - Dep. Mathematik / Dep. of Mathematics::02003 - Mathematik Selbständige Professuren::09727 - Acciaio, Beatrice / Acciaio, Beatrice
en_US
ethz.leitzahl.certified
ETH Zürich::00002 - ETH Zürich::00012 - Lehre und Forschung::00007 - Departemente::02000 - Dep. Mathematik / Dep. of Mathematics::02003 - Mathematik Selbständige Professuren::09727 - Acciaio, Beatrice / Acciaio, Beatrice
en_US
ethz.date.deposited
2021-01-28T13:45:01Z
ethz.source
FORM
ethz.eth
no
en_US
ethz.availability
Metadata only
en_US
ethz.rosetta.installDate
2021-03-04T14:30:04Z
ethz.rosetta.lastUpdated
2022-03-29T05:37:32Z
ethz.rosetta.versionExported
true
ethz.COinS
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