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[01854] Dynamic Roughness in the Term Structure of Oil Markets Volatility

  • Session Time & Room : 2E (Aug.22, 17:40-19:20) @A201
  • Type : Contributed Talk
  • Abstract : This paper analyses the attributes and the significance of the roughness of oil market volatil- ity. We employ unspanned stochastic volatility models driven by rough Brownian motions that yield semi-analytic prices for futures options entailing efficient calibration applications. We calibrate option prices written on oil futures and provide empirical evidence of the dy- namic nature of the roughness in oil volatility. The calibrated option-implied Hurst param- eter varies over time, but rough stochastic volatility models provide a better fit to the term structure of implied oil volatility compared to classical stochastic volatility. Furthermore, including the Hurst parameter into the set of implied parameters benefits the stability of the calibrated parameters and improves pricing performance.
  • Classification : 91Gxx, 60Lxx, 60Hxx
  • Format : Talk at Waseda University
  • Author(s) :
    • Christina Nikitopoulos (UTS)
    • Messias Alfeus (Stellenbosch University)
    • Ludger Overbeck (Justus-Liebig-University Giessen)