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Contribution Details
| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Expansion-Based Methods for VIX Option Pricing |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Date | 2018 |
| Abstract Text | Applying to VIX options an expansion-based method for retrieving the risk neutral probability measure from option market prices. This method, so-called Gauss-Hermite series expansion, makes use of the "physisists" Hermite polynomials and, quite convenient in finance, converges for fat-tailed distributions. This approach has the additional significant advantage to enable getting the expansion coefficients by calibration to observed options prices. We mention different properties of the VIX index and its derivatives, notably the fact that the underlying for VIX options is the forward VIX. The latter can be proxied by VIX futures. Inspired by the literature regarding VIX options, we slightly adapt the closed-form formula for call option pricing suggested in Necula & al. (2018) and compare its pricing and hedging performance in-sample and out-of-sample with a cubic spline interpolation technique over the period 2013-2017. |
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