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Is the minimum value of an option on variance generated by local volatility?

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  • Mathias Beiglboeck
  • Peter Friz
  • Stephan Sturm

Abstract

We discuss the possibility of obtaining model-free bounds on volatility derivatives, given present market data in the form of a calibrated local volatility model. A counter-example to a wide-spread conjecture is given.

Suggested Citation

  • Mathias Beiglboeck & Peter Friz & Stephan Sturm, 2010. "Is the minimum value of an option on variance generated by local volatility?," Papers 1001.4031, arXiv.org, revised Jan 2011.
    • Handle: RePEc:arx:papers:1001.4031
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    File URL: http://arxiv.org/pdf/1001.4031
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    Cited by:

    1. Beatrice Acciaio & Julien Guyon, 2019. "Inversion of Convex Ordering: Local Volatility Does Not Maximize the Price of VIX Futures," Papers 1910.05750, arXiv.org.
    2. Acciaio, Beatrice & Guyon, Julien, 2020. "Short communication: inversion of convex ordering: local volatility does not maximise the price of VIX futures," LSE Research Online Documents on Economics 102984, London School of Economics and Political Science, LSE Library.

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