Local Volatility of Volatility for the VIX Market

Drimus, Gabriel G.; Farkas, Walter

doi:10.2139/ssrn.1970547

Cited by 10 publications

(9 citation statements)

References 18 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Mean‐reversion, stochastic volatility of volatility and volatility jumps are features considered to be important in these papers. For more recent studies in this area see, for instance, Kaeck and Alexander (), Drimus and Farkas () and Baldeaux and Badran () and references therein.…”

Section: Introduction and Literature Reviewmentioning

confidence: 99%

Trading and Investing in Volatility Products

2015

View full text Add to dashboard Cite

Since the banking crisis the market for volatility exchange-traded products has developed rapidly as it opens to clients beyond the large institutional investor pool.Speculation is driven by increasingly complex leveraged and inverse exposures including those that attempt to trade on significant roll costs in volatility futures curves.Longer-term investors use these products for the purposes of equity diversification, driven by fears of an ongoing Eurozone crisis. We survey the burgeoning academic literature in this area and present a comprehensive and up-to-date comparison of the market and statistical characteristics of European and US exchange-traded volatility products.JEL classification: G12, G15, G23

show abstract

Section: Introduction and Literature Reviewmentioning

confidence: 99%

Trading and Investing in Volatility Products

2015

View full text Add to dashboard Cite

show abstract

“…This behavior is also seen in the inset of the lower left panel. This inset shows the density given by formula (34) when the maximum expiry time T reached 1.5. Recall that this is the distribution of log-returns whose realized variance has not yet reached B.…”

Section: Pricing Results and Discussionmentioning

confidence: 99%

“…For stochastic volatility processes, we start by emphasizing the 3/2 stochastic volatility model [32][33][34] not only in view of its analytical tractability but also because of the support from empirical evidence [35][36][37]. The results for this model are obtained by making a connection with the Morse potential.…”

Section: Introductionmentioning

confidence: 99%

Path integral approach to the pricing of timer options with the Duru-Kleinert time transformation

2011

View full text Add to dashboard Cite

In this paper, a time substitution as used by Duru and Kleinert in their treatment of the hydrogen atom with path integrals is performed to price timer options under stochastic volatility models. We present general pricing formulas for both the perpetual timer call options and the finite time-horizon timer call options. These general results allow us to find closed-form pricing formulas for both the perpetual and the finite time-horizon timer options under the 3/2 stochastic volatility model as well as under the Heston stochastic volatility model. For the treatment of timer options under the 3/2 model we will rely on the path integral for the Morse potential, with the Heston model we will rely on the Kratzer potential.

show abstract

“…The VIX, as a measure of the implied 30‐day volatility of the SPX options, can be derived from the joint dynamics. The second one is to specify the VIX dynamics or the logarithmic VIX dynamics directly (e.g., Drimus & Farkas, ; Goard & Mazur, ; Grünbichler & Longstaff, ; Park, ), which is the route we take in this paper. In accordance with market practice, the hedging of options on the VIX usually makes use of corresponding futures, the pricing of VIX options, therefore, can be addressed by directly assuming the VIX dynamics, analogous to the valuation of stock index options.…”

Section: Introductionmentioning

confidence: 99%

Pricing VIX options with volatility clustering

Jing

2020

Journal of Futures Markets

View full text Add to dashboard Cite

We investigate the valuation of volatility index (VIX) options by developing a model with a self-exciting Hawkes process that allows for clustering in the VIX. In the proposed framework, we find semianalytical expressions for the characteristic function and forward characteristic function, and then we solve the pricing problem of standard-start and forward-start options via the fast Fourier transform. The empirical results provide evidence to support the significance of accounting for volatility clustering when pricing VIX options. K E Y W O R D Sfast Fourier transform, self-exciting Hawkes process, VIX options, volatility clustering

show abstract

Local Volatility of Volatility for the VIX Market

Cited by 10 publications

References 18 publications

Trading and Investing in Volatility Products

Trading and Investing in Volatility Products

Path integral approach to the pricing of timer options with the Duru-Kleinert time transformation

Pricing VIX options with volatility clustering

Contact Info

Product

Resources

About