EconPapers    
Economics at your fingertips  
 

A non-structural investigation of VIX risk neutral density

Andrea Barletta, Paolo Santucci de Magistris () and Francesco Violante ()

Journal of Banking & Finance, 2019, vol. 99, issue C, 1-20

Abstract: We propose a non-structural method to retrieve the risk-neutral density (RND) implied by options on the CBOE Volatility Index (VIX). The methodology is based on orthogonal polynomial expansions around a kernel density and yields the RND of the underlying asset without the need for a parametric specification. The classic family of Laguerre expansions is extended to include the GIG and the generalized Weibull kernels. We show that orthogonal polynomial expansions yield accurate approximations of the RND of VIX and they generally outperform commonly used non-parametric methods when controlling for accuracy. Based on a panel of observed VIX options, we retrieve the variance swap term structure, the time series of VVIX, the VIX risk-neutral moments and the Volatility-at-Risk, which reveal a number of stylized facts on the RND of VIX.

Keywords: VIX Options; Orthogonal expansions; Risk-neutral moments; Volatility jumps; Volatility tail-risk (search for similar items in EconPapers)
JEL-codes: C01 C02 C58 G12 G13 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426618302528
Full text for ScienceDirect subscribers only

Related works:
Working Paper: A Non-Structural Investigation of VIX Risk Neutral Density (2017) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:99:y:2019:i:c:p:1-20

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-09-21
Handle: RePEc:eee:jbfina:v:99:y:2019:i:c:p:1-20