VIX Computation Based on Affine Stochastic Volatility Models in Discrete Time
Forthcoming on "Recent Advances in Commodity and Financial Modeling" Springer's International Series in Operations Research and Management Science.
16 Pages Posted: 29 Mar 2013 Last revised: 19 Dec 2015
Date Written: December 18, 2015
We propose a class of discrete-time stochastic volatility models that, in a parsimonious way, captures the time-varying higher moments observed in financial series. We build this class of models in order to reach two desirable results. Firstly, we have a recursive procedure for the characteristic function of the log price at maturity that allows a semi-analytical formula for option prices as in Heston and Nandi (2000). Secondly, we try to reproduce some features of the VIX Index. We derive a simple formula for the VIX index and use it for option pricing purposes.
Keywords: Affine Stochastic Volatility, VIX, Implied Volatility Surface
JEL Classification: G13, C32
Suggested Citation: Suggested Citation