Specification analysis of VXX option pricing models under Lévy processes

Jiling Cao, Xinfeng Ruan, Shu Su and Wenjun Zhang

Journal of Futures Markets, 2021, vol. 41, issue 9, 1456-1477

Abstract: We conduct a comprehensive study on the specifications of VXX option pricing models under Lévy processes during the period from 2010 to 2017 based on in‐sample and out‐of‐sample performance tests. Our empirical results imply that a jump component plays an important role in VXX option pricing. In particular, we find that infinite‐activity jump models are superior to finite‐activity jump models. More importantly, this paper corrects the VXX option pricing theory in the literature; that is the discounted VXX price should be a martingale under the risk‐neutral measure as the VXX is an exchange‐traded debt security.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1002/fut.22218

Related works:
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:wly:jfutmk:v:41:y:2021:i:9:p:1456-1477

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-7314

Access Statistics for this article

Journal of Futures Markets is currently edited by Robert I. Webb

More articles in Journal of Futures Markets from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().