The VIX, the stock market option-based implied volatility, strongly co-moves with measures of the monetary policy stance. When decomposing the VIX into two components, a proxy for risk aversion and expected stock market volatility ("uncertainty"), we find that a lax monetary policy decreases...

The VIX, the stock market option-based implied volatility, strongly co-moves with measures of the monetary policy stance. When decomposing the VIX into two components, a proxy for risk aversion and expected stock market volatility (“uncertainty”), we find that a lax monetary policy decreases...

The VIX, the stock market option-based implied volatility, strongly co-moves with measures of the monetary policy stance. When decomposing the VIX into two components, a proxy for risk aversion and expected stock market volatility (“uncertainty”), we find that a lax monetary policy decreases...

We document a strong co-movement between the VIX, the stock market option-based implied volatility, and monetary policy. We decompose the VIX into two components, a proxy for risk aversion and expected stock market volatility (“uncertainty”), and analyze their dynamic interactions with...

The VIX, the stock market option-based implied volatility, strongly co-moves with measures of the monetary policy stance. When decomposing the VIX into two components, a proxy for risk aversion and expected stock market volatility ("uncertainty"), we find that a lax monetary policy decreases...

When designing multi-asset stochastic volatility (SV) or local-stochastic volatility (LSV) models, one of the main issues involves the construction of the global correlation matrix. Typically correlation matrices for each assets' degrees of freedom are set and the challenge is to build a global...

We examine local-stochastic volatility models and derive a simple condition such models need to obey so that the carry P&L of a delta-hedged/vega-hedged position makes sense in a trading context.We give examples of admissible and non-admissible models and discuss the issue of the delta position...

This is Chapter 2 of Stochastic Volatility Modeling, published by CRC/Chapman & Hall.In this chapter the local volatility model is surveyed as a market model for the underlying together with its associated vanilla options.First, relationships of implied to local volatilities are derived, as well...

We begin by deriving suitability conditions for risk-management models for derivatives and review the Black-Scholes model. Next, the (in)efficiency of delta-hedging is analyzed by quantifying the standard deviation of the carry P&L of a delta-hedged position in the Black-Scholes case and in the...

We consider general stochastic volatility models with no local volatility component and derive the general expression of the volatility smile at order two in volatility-of-volatility. We show how, at this order, the smile only depends on three dimensionless numbers whose precise expressions as...