VIX option pricing through nonaffine GARCH dynamics and semianalytical formula
Junting Liu,
Qi Wang,
Yuanyuan Zhang
Abstract:This paper develops analytical approximations for volatility index (VIX) option pricing under nonaffine generalized autoregressive conditional heteroskedasticity (GARCH) models as advocated by Christoffersen et al. We obtain the approximation formulae for pricing VIX options and then evaluate their performance with three expansions under four empirically well‐tested models. Our numerical experiments find that the weighted expansion generated by the fat‐tailed weighting kernel can significantly reduce approxim… Show more
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