VIX Option Pricing in a Jump-Diffusion Model

Risk Magazine, pp. 84-89, April 2008

10 Pages Posted: 1 Jun 2009

See all articles by Artur Sepp

Artur Sepp

Sygnum Bank Asset Management

Date Written: February 10, 2008


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.

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

JEL Classification: C00, G00

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:

Artur Sepp (Contact Author)

Sygnum Bank Asset Management ( email )

Uetlibergstrasse 134a
Zurich, 8045


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