VIX Computation Based on Affine Stochastic Volatility Models in Discrete Time

A. Hitaj (), L. Mercuri () and E. Rroji ()
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A. Hitaj: University of Milano-Bicocca
L. Mercuri: University of Milan
E. Rroji: University of Trieste

Chapter Chapter 7 in Handbook of Recent Advances in Commodity and Financial Modeling, 2018, pp 141-164 from Springer

Abstract: Abstract We propose a class of discrete-time stochastic volatility models that, in a parsimonious way, capture the time-varying higher moments observed in financial series. Three desirable results are obtained. First, we have a recursive procedure for the log-price characteristic function which allows a semi-analytical formula for option prices as in Heston and Nandi (Rev Financ Stud 13(3):585–625, 2000). Second, we reproduce some features of the VIX Index. Finally, we derive a simple formula for the VIX index and use it for option pricing.

Keywords: Affine stochastic volatility; VIX; Implied volatility surface (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/978-3-319-61320-8_7

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