Fetching the paper…

Reading the bibliography…

2021

Hedging under rough volatility

Fukasawa, Masaaki, Horvath, Blanka, Tankov, Peter

Original
PDF
Post on X

Understand

In this chapter we first briefly review the existing approaches to hedging in rough volatility models.

Next, we present a simple but general result which shows that in a one-factor rough stochastic volatility model, any option may be perfectly hedged with a dynamic portfolio containing the underlying and one other asset such as a variance swap.
In the final section we report the results of a back-test experiment using real data, where VIX options are hedged with a forward variance swap.
In this experiment, using a rough volatility model allows to almost completely remove the bias and reduce the overall hedging error by a factor of 27% compared to traditional diffusion-based models.

Hedging under rough volatility · Around

Built on

S. D. Jacka
1992
Earlier work this paper cites.
J.-P. Ansel and C. Stricker
1994
Earlier work this paper cites.
F. Y. Delbaen and W. Schachermayer
1995
Earlier work this paper cites.
L. Bergomi
2005
Earlier work this paper cites.
O.E. Barndorff-Nielen and A. Basse-O’Connor
2011
Earlier work this paper cites.
C. Bayer, P. Friz, and J. Gatheral
2016
Earlier work this paper cites.
M. Bennedsen, A. Lunde, and M. S. Pakkanen
2017
Earlier work this paper cites.

Similar

O. El Euch and M. Rosenbaum
2018
Cited alongside, same era.
J. Gatheral, T. Jaisson, and M. Rosenbaum
2018
Cited alongside, same era.
G. Livieri, S. Mouti, A. Pallavicini, and M. Rosenbaum
2018
Cited alongside, same era.
R. McCrickerd and M. S. Pakkanen
2018
Cited alongside, same era.
C. Bayer, B. Horvath, A. Muguruza, B. Stemper, and M. Tomas
Original
2019
Cited alongside, same era.
H. Buehler, L. Gonon, J. Teichmann, and B. Wood
2019
Cited alongside, same era.

Then

P. Gassiat
2019
Later among the works it cites.
F. Viens and J. Zhang
Original
2019
Later among the works it cites.
B. Horvath, A. Jacquier, and P. Tankov
2020
Later among the works it cites.
M. Fukasawa and A. Hirano
2021
Closest in time.
B. Horvath, A. Muguruza, and M. Tomas
2021
Closest in time.
B. Horvath, J. Teichmann, and Z. Zuric
2021
Closest in time.

Beyond the bibliography

alphaXiv searches the wider corpus for related work and actual follow-ups.

Open on alphaXiv

alphaXiv is searching for related work…