December 2015
Intermediate to advanced
522 pages
20h
English
Content preview from Stochastic Volatility Modeling
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272 Stochastic volatility modeling
plied volatility is
70%
) with no particular concentration on the nal two months
before expiry. The resulting VXX implied volatilities are lower than market implied
volatilities, which is not surprising.
Conversely, consider the case
k
1
= 12
. As the graph in the right-hand side of
Figure 7.13 shows, the volatility of VIX futures is now concentrated right before
expiry. However, as is clear from Figure 7.11, this is where their weight in the VXX
vanishes: again we expect low VXX implied volatilities, which the left-hand graph
in Figure 7.13 conrms.
One can see that the highest implied volatilities are obtained for
k
1
'
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