Extreme-strike comparisons and structural bounds for SPX and VIX options

DOI10.1137/141001615MaRDI QIDQ4579824zbMATH OpenOpenAlexWikidataFDO

Authors

Publication date 10 August 2018

Published in SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2101.00299

zbMATH Keywords

VIX optionsmodel freemoment formulasextreme strikes

Mathematics Subject Classification ID

Portfolio theory (91G10)

Abstract: This article explores the relationship between the SPX and VIX options markets. High-strike VIX call options are used to hedge tail risk in the SPX, which means that SPX options are a reflection of the extreme-strike asymptotics of VIX options, and vice versa. This relationship can be quantified using moment formulas in a model-free way. Comparisons are made between VIX and SPX implied volatilities along with various examples of stochastic volatility models.

Recommendations

• Consistent modeling of S\&P 500 and VIX derivatives
• Asymptotic Formulas with Error Estimates for Call Pricing Functions and the Implied Volatility at Extreme Strikes
• Analysis of VIX markets with a time-spread portfolio
• THE MOMENT FORMULA FOR IMPLIED VOLATILITY AT EXTREME STRIKES
• Pricing VIX options with stochastic volatility and random jumps

Cites work

• scientific article; zbMATH DE number 4030574 (Why is no real title available?)
• A consistent pricing model for index options and volatility derivatives
• A mathematical theory of financial bubbles
• A new approach for option pricing under stochastic volatility
• A regime-switching Heston model for VIX and S&P 500 implied volatilities
• A tale of two option markets: pricing kernels and volatility risk
• Analysis of VIX markets with a time-spread portfolio
• Arbitrage-free SVI volatility surfaces
• Consistent modelling of VIX and equity derivatives using a \(3/2\) plus jumps model
• Correlations and bounds for stochastic volatility models
• Fast Ninomiya-Victoir calibration of the double-mean-reverting model
• Hedging variance options on continuous semimartingales
• Linking Vanillas and VIX Options: A Constrained Martingale Optimal Transport Problem
• Local martingales, bubbles and option prices
• Moment explosions in stochastic volatility models
• On refined volatility smile expansion in the Heston model
• On the martingale property in stochastic volatility models based on time-homogeneous diffusions
• On the martingale property of certain local martingales
• Optimal positioning in derivative securities
• Options on realized variance by transform methods: a non-affine stochastic volatility model
• Smile Asymptotics II: Models with Known Moment Generating Functions
• THE MOMENT FORMULA FOR IMPLIED VOLATILITY AT EXTREME STRIKES
• The S\&P 500 index as a Sato process travelling at the speed of the VIX
• Two singular diffusion problems
• Valuation of volatility derivatives as an inverse problem
• When a stochastic exponential is a true martingale. Extension of the Beneš method

Cited in

(2)

• The VIX Future in Bergomi Models: Fast Approximation Formulas and Joint Calibration with S&P 500 Skew
• Consistent time‐homogeneous modeling of SPX and VIX derivatives

This page was built for publication: Extreme-strike comparisons and structural bounds for SPX and VIX options

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q4579824)