TY - JOUR
T1 - Valuation of VIX and target volatility options with affine GARCH models
AU - Cao, Hongkai
AU - Badescu, Alexandru
AU - Cui, Zhenyu
AU - Jayaraman, Sarath Kumar
N1 - Publisher Copyright:
© 2020 Wiley Periodicals LLC
PY - 2020/12
Y1 - 2020/12
N2 - In this paper we propose semiclosed-form solutions, subject to an inversion of the Fourier transform, for the price of VIX options and target volatility options under affine GARCH models based on Gaussian and Inverse Gaussian distributions. We illustrate the advantage of the proposed analytic expressions by comparing them with those obtained from benchmark Monte–Carlo simulations. The empirical performance of the two affine GARCH models is tested using different calibration exercises based on historical returns and market quotes on VIX and SPX options.
AB - In this paper we propose semiclosed-form solutions, subject to an inversion of the Fourier transform, for the price of VIX options and target volatility options under affine GARCH models based on Gaussian and Inverse Gaussian distributions. We illustrate the advantage of the proposed analytic expressions by comparing them with those obtained from benchmark Monte–Carlo simulations. The empirical performance of the two affine GARCH models is tested using different calibration exercises based on historical returns and market quotes on VIX and SPX options.
KW - Heston-Nandi GARCH model
KW - VIX options
KW - inverse gaussian model
KW - joint calibration
KW - target volatility options
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U2 - 10.1002/fut.22157
DO - 10.1002/fut.22157
M3 - Article
AN - SCOPUS:85090062053
SN - 0270-7314
VL - 40
SP - 1880
EP - 1917
JO - Journal of Futures Markets
JF - Journal of Futures Markets
IS - 12
ER -