IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v71y2025i5p3891-3923.html
   My bibliography  Save this article

A New Model for the Joint Valuation of S&P 500 and VIX Options: Specification Analysis

Author

Listed:
  • Peixuan Yuan

    (School of Business, Hong Kong Baptist University, Hong Kong, China)

Abstract

Analyzing the specifications of pricing models for the joint valuation of S&P 500 and VIX options, I find that the existing models cannot adequately represent the two options markets. I introduce a new factor that controls the higher-order moments of the risk-neutral return distribution. The model I propose significantly outperforms all other alternatives, and particularly improves on the benchmark two-variance-factor model with cojumps by 23.66% in-sample and 31.64% out-of-sample. The performance analysis shows that the better fit results from improvements in the modeling of both S&P 500 and VIX options, highlighting the model features that are critical for reconciling the two markets.

Suggested Citation

  • Peixuan Yuan, 2025. "A New Model for the Joint Valuation of S&P 500 and VIX Options: Specification Analysis," Management Science, INFORMS, vol. 71(5), pages 3891-3923, May.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:5:p:3891-3923
    DOI: 10.1287/mnsc.2022.00327
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2022.00327
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2022.00327?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:71:y:2025:i:5:p:3891-3923. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.