Abstract
This article explores the relationship between the SPX and VIX options markets. High-strike VIX call options are used to hedge tail risk in the SPX, which means that SPX options are a reflection of the extreme-strike asymptotics of VIX options, and vice versa. This relationship can be quantified using moment formulas in a model-free way. Comparisons are made between VIX and SPX implied volatilities along with various examples of stochastic volatility models.
Original language | English (US) |
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Pages (from-to) | 401-434 |
Number of pages | 34 |
Journal | SIAM Journal on Financial Mathematics |
Volume | 9 |
Issue number | 2 |
DOIs | |
State | Published - 2018 |
Keywords
- Extreme strikes
- Model free
- Moment formulas
- VIX options
ASJC Scopus subject areas
- Numerical Analysis
- Finance
- Applied Mathematics