Isolating a risk premium on the volatility of volatility

Lorenzo Ravagli shows how to exploit a risk premium embedded in the vol of vol in out-of-the-money options

Volatility arrows

The author finds that for a class of stochastic volatility models, under the limits of zero skew, short maturity and near-the money, the implied lognormal volvol enters the dynamics of an option as a breakeven term corresponding to theVolga axis of risk: a non-zero Volga term monetises a P&L that is proportional to the differential of the squared values of implied and realised volvol.

CLICK HERE TO VIEW THE PDF

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact [email protected] or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact [email protected] to find out more.

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: