[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.