The Department of Finance and Risk Engineering welcomes Roza Galeeva, Adjunct Professor in the Department of Finance and Risk Engineering at NYU Tandon to the BQE Lecture Series.
Oil Futures Volatility Smiles in 2020: Why the Bachelier Smile is Flatter
In this paper, we consider the response of the oil-futures option market to the onset of severe conditions in the aftermath of Feb. 5, 2020. Motivated in part by the decline of the WTI futures contract into negative territory on April 20, 2020, for the derivative market on oil futures we consider an analytical contrast between the traditional Black model and its long-ago predecessor, the Bachelier model.
Under 2020 crash conditions, the Bachelier model performs better than Black, displaying a significantly flatter vol smile. Based in part on previously published research for short-dated maturities, the rationale for this difference is built on the contrast between implied Black and Bachelier volatilities. Other than for extreme strikes and high Black vols, we show that the rapport works well in a wider range of maturities and volatilities. Using options data over the year 2020, we explore a notion of the normalized strike to measure quantitatively the vol skew.
Roza Galeeva offers broad experience both in academia and industry. She has extensive experience over 18 years with derivatives – including modeling, pricing and risk management, and data analysis. She has been employed at senior levels as a quant at major energy in the US, and most recently, for 13 years, at Morgan Stanley. She worked at MS in different roles and departments, including the Valuation Group, and later MS strats and modeling group.
Prior to industry, Roza was teaching courses in mathematics in different countries. She got a Ph.D. from Moscow State University in Mathematical Physics. She published papers in geometry, PDE, dynamical systems, and financial engineering. She made her come back to academia in 2017 at NYU. Besides teaching financial engineering courses at NYU, Roza was teaching at Boston University Questrom Business School, and recently at Johns Hopkins Carey Business School.