Pricing VXX options by modeling VIX directly

About this item

Title

Pricing VXX options by modeling VIX directly

Content partner

University of Otago

Collection

Otago University Research Archive

Description

In this paper, we first develop a theoretical and model-free VXX formula in terms of Volatility Index (VIX) futures in both discrete and continuous forms. The discrete form of VXX can quantify the roll yield of VXX, which can be used to explain VXX's underperformance. Using the log-normal Ornstein-Uhlenbeck (LOU) diffusion model, we show how the number of rolls of VIX futures affects the VXX option pricing formula and its implied volatility (IV). To further verify the nonflat IV of VXX, the V...

Read more

Format

Research paper

Research format

Scholarly text / Journal article

Thesis level

Article

Date created

2022-05

Creator

Lin, Wei / Zhang, Jin E.

URL

https://hdl.handle.net/10523/19000

Related subjects

Business & Economics / Business, Finance / Social Sciences

What is the copyright status of this item?

All Rights Reserved

This item is all rights reserved, which means you'll have to get permission from University of Otago before using it.

What can I do with this item?

You must always check with University of Otago to confirm the specific terms of use, but this is our understanding:

Non-infringing use

NZ Copyright law does not prevent every use of a copyright work. You should consider what you can and cannot do with a copyright work.

No sharing

You may not copy and/or share this item with others without further permission. This includes posting it on your blog, using it in a presentation, or any other public use.

No modifying

You are not allowed to adapt or remix this item into any other works.

No commercial use

You may not use this item commercially.