Is the Minimum Value of an Option on Variance Generated by Local Volatility?
SIAM J. Financial Math
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 counterexample to a widespread conjecture is given.
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Sturm, S., Beiglöck, M., & Friz, P. K. (2011). Is the Minimum Value of an Option on Variance Generated by Local Volatility?. SIAM J. Financial Math, 2, 213-220. http://dx.doi.org/10.1137/100800166