“Implied volatility change is negatively correlated with asset prices”, John Hull said, kicking off the presentation of his recent work on volatility surface movements, co-authored by Jay Cao and Jacky Chen.
Understanding volatility surface movements can test whether a stochastic volatility model is consistent with the market; it can help traders adjust prices; and it can help improve delta hedging. In his work, Hull attempts to use machine learning – artificial neural networks, in particular – to improve on previous models.