A1577
Title: On general semi-closed-form solutions for VIX derivative pricing
Authors: Etienne Bacon - HEC Montreal (Canada) [presenting]
Genevieve Gauthier - HEC Montreal (Canada)
Jean-Francois Begin - Simon Fraser University (Canada)
Abstract: Most pricing methods for VIX futures and European VIX options rely on the existence of the squared VIX's moment-generating function. Yet, the function does not exist for state-of-the-art option pricing models, which prevents their widespread use. The purpose is to show closed-form solutions for VIX futures and European VIX option prices that rely on the characteristic functions of the squared VIX. These pricing formulas are applicable to a wide class of models, virtually all exponentially affine models in the literature, among others, as the characteristic function always exists. The newly proposed pricing methodologies are also tested against usual benchmarks in the literature, and are reported that they lead to more efficient and accurate prices.
