Estimation and Calibration of a Dynamic Variance Gamma Model Using Vix Data

16 Pages Posted: 22 Oct 2010

Date Written: September 18, 2010

Abstract

The aim of this paper is to investigate the ability of the Dynamic Variance Gamma model, recently proposed by Bellini and Mercuri (2010), to evaluate option prices on the S&P500 index. We also provide a simple relation between the Dynamic Variance Gamma model and the Vix index. We use this result to build a maximum likelihood estimation procedure and to calibrate the model on option data.

Keywords: Variance-Gamma Distribution, Stochastic Volatility Model, Vix Index, Maximum Likelihood Estimation, Calibration

JEL Classification: C00, C63, C65, G12, G13

Suggested Citation

Mercuri, Lorenzo, Estimation and Calibration of a Dynamic Variance Gamma Model Using Vix Data (September 18, 2010). Available at SSRN: https://ssrn.com/abstract=1695515 or http://dx.doi.org/10.2139/ssrn.1695515

Lorenzo Mercuri (Contact Author)

University of Milan ( email )

Via Festa del Perdono, 7
Milan, 20122
Italy

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