Functional quantization of rough volatility and applications to volatility derivatives

TL;DR

This paper introduces a novel functional quantization method for rough volatility models, enabling efficient offline computation and improved pricing of volatility derivatives like VIX Futures.

Contribution

It develops a new product functional quantization technique for rough volatility, enhancing numerical tools for derivative pricing.

Findings

Quantizers can be computed offline for efficiency

Accurate pricing of VIX Futures in the rough Bergomi model

Competitive performance against recent benchmarks

Abstract

We develop a product functional quantization of rough volatility. Since the quantizers can be computed offline, this new technique, built on the insightful works by Luschgy and Pages, becomes a strong competitor in the new arena of numerical tools for rough volatility. We concentrate our numerical analysis to pricing VIX Futures in the rough Bergomi model and compare our results to other recently suggested benchmarks.