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VIX derivatives valuation and estimation based on closed-form series expansions

Author

Listed:
  • Zhe Zhao

    (School of Business, Stevens Institute of Technology, 1 Castle Point on Hudson, Hoboken, NJ 07310, United States)

  • Zhenyu Cui

    (School of Business, Stevens Institute of Technology, 1 Castle Point on Hudson, Hoboken, NJ 07310, United States)

  • Ionuţ Florescu

    (School of Business, Stevens Institute of Technology, 1 Castle Point on Hudson, Hoboken, NJ 07310, United States)

Abstract

We propose a new methodology to evaluate VIX derivatives. The approach is based on a closed-form Hermite series expansion, and can be applied to general stochastic volatility models. We exemplify the proposed method using the Heston model, the mean-reverting CEV model and the 3/2 model. Numerical results show that the proposed method is accurate and efficient.

Suggested Citation

  • Zhe Zhao & Zhenyu Cui & Ionuţ Florescu, 2018. "VIX derivatives valuation and estimation based on closed-form series expansions," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 5(02), pages 1-18, June.
    • Handle: RePEc:wsi:ijfexx:v:05:y:2018:i:02:n:s2424786318500202
    DOI: 10.1142/S2424786318500202
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    References listed on IDEAS

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    Cited by:

    1. Florian Bourgey & Stefano De Marco & Emmanuel Gobet, 2022. "Weak approximations and VIX option price expansions in forward variance curve models," Papers 2202.10413, arXiv.org, revised May 2022.

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