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

Zhe Zhao (), Zhenyu Cui () and Ionuţ Florescu
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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

International Journal of Financial Engineering (IJFE), 2018, vol. 05, issue 02, 1-18

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.

Keywords: VIX derivatives; Hermite series; stochastic volatility; Heston model; mean-reverting CEV model; 3/2 model (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S2424786318500202

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