Volatility and what Lies Beneath: A Joint Model

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In this paper a model for the joint dynamics of forward variance swap prices and the underlying stock index is proposed. It is shown how options on forward variance swaps, along with options on the underlying can be priced consistently.
The calibration of the model is done step-wise, first by fitting VIX option prices and then options on the underlying making the model implementable from a calibration perspective.
Finally, the model is implemented and it is shown how it fits VIX index option prices along with European options on S&P 500 for various maturities.

Original languageEnglish
Publication year2009
Publication statusPublished - 2009
Event19th Annual Derivatives Securities and Risk Management Conference - Arlington, Virginia, United States
Duration: 17 Apr 200918 Apr 2009

Conference

Conference19th Annual Derivatives Securities and Risk Management Conference
CountryUnited States
CityArlington, Virginia
Period17/04/200918/04/2009

    Research areas

  • VIX index, market model, Variance swaps, volatility smiles, joint spot / variance model

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