Extreme-Strike Comparisons and Structural Bounds for SPX and VIX Options
Pricing of Securities
2021-03-04 v2
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.
Cite
@article{arxiv.2101.00299,
title = {Extreme-Strike Comparisons and Structural Bounds for SPX and VIX Options},
author = {Andrew Papanicolaou},
journal= {arXiv preprint arXiv:2101.00299},
year = {2021}
}
Comments
Special Thank You to Roger Lee for your help in this paper