Extreme-Strike Comparisons and Structural Bounds for SPX and VIX Options
SIAM Journal on Financial Mathematics (2018) Vol. 9, No, 3, pp. 401-434
34 Pages Posted: 30 Nov 2014 Last revised: 2 May 2018
Date Written: January 8, 2017
This article explores the relationship between the SPX and VIX options markets. High-strike VIX call options are used to hedge tail risk in the SPX, which means that SPX options are a reflection of the extreme-strike asymptotics of VIX options, and vice versa. This relationship can be quantified using moment formulas in a model-free way. Comparisons are made between VIX and SPX implied volatilities along with various examples of stochastic volatility models.
Keywords: VIX options, moment formula, stochastic volatility
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