Abstract

http://ssrn.com/abstract=1412339
 
 

References (14)



 
 

Citations (11)



 


 



VIX Option Pricing in a Jump-Diffusion Model


Artur Sepp


Merrill Lynch & Co.

February 10, 2008

Risk Magazine, pp. 84-89, April 2008

Abstract:     
We first discuss the positive volatility skew observed in the implied volatilities of VIX options. To model this feature, we apply the square root stochastic variance model with variance jumps for the evolution of the S&P500 index volatility. Then we develop a robust method for unified pricing and hedging of different volatility products on the implied and realized variance of the S&P500 index and show how to apply this formula for pricing the VIX futures and options.

Number of Pages in PDF File: 10

Keywords: VIX index, VIX futures and options, Imlied volatility, Stochastic volatility, Heston model with volatility jumps

JEL Classification: C00, G00

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Date posted: June 1, 2009  

Suggested Citation

Sepp, Artur, VIX Option Pricing in a Jump-Diffusion Model (February 10, 2008). Risk Magazine, pp. 84-89, April 2008. Available at SSRN: http://ssrn.com/abstract=1412339

Contact Information

Artur Sepp (Contact Author)
Merrill Lynch & Co. ( email )
Merrill Lynch Financial Centre
2 King Edward Street
London, London EC1A 1HQ
United Kingdom
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