This paper proposed using the willow tree method to build a model that describes the volatility dynamics of both SPX and VIX options concurrently.

The method has proven successful in addressing the joint calibration challenge of the SPX and VIX markets.

As a result, it will enable risk and portfolio managers to identify new opportunities and manage risks more effectively.

Could this be a game changer for managing cross-asset volatility exposure?

Want more research breakdowns like this? Subscribe for weekly insights