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Rejoinder to a remark on Lin and Chang's paper ‘Consistent modeling of S&P 500 and VIX derivatives’

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  • Lin, Yueh-Neng
  • Chang, Chien-Hung

Abstract

We appreciate the thorough review and very useful comments of Cheng, Ibraimi, Leippold, and Zhang. The suggestions have helped significantly to improve our original approximation formula and lead us to provide an exact solution under the Lin and Chang (2010) framework and we thank the editor to give us an illustration chance. This rejoinder has two parts. The first presents a VIX option pricing formula in the stochastic volatility (SV) model. The numerical results using the authors' framework and notations are illustrated, too. The second is to explain our approximate formula in Lin and Chang (2010) and points out the limitation and calibrating technique of the approximation.

Suggested Citation

  • Lin, Yueh-Neng & Chang, Chien-Hung, 2012. "Rejoinder to a remark on Lin and Chang's paper ‘Consistent modeling of S&P 500 and VIX derivatives’," Journal of Economic Dynamics and Control, Elsevier, vol. 36(5), pages 716-718.
    • Handle: RePEc:eee:dyncon:v:36:y:2012:i:5:p:716-718
    DOI: 10.1016/j.jedc.2012.01.003
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    References listed on IDEAS

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    1. Lin, Yueh-Neng & Chang, Chien-Hung, 2010. "Consistent modeling of S&P 500 and VIX derivatives," Journal of Economic Dynamics and Control, Elsevier, vol. 34(11), pages 2302-2319, November.
    2. George J. Jiang & Yisong S. Tian, 2005. "The Model-Free Implied Volatility and Its Information Content," The Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1305-1342.
    3. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," The Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-343.
    4. Song‐Ping Zhu & Guang‐Hua Lian, 2012. "An analytical formula for VIX futures and its applications," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 32(2), pages 166-190, February.
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    Cited by:

    1. Ma, Jingtang & Li, Wenyuan & Han, Xu, 2015. "Stochastic lattice models for valuation of volatility options," Economic Modelling, Elsevier, vol. 47(C), pages 93-104.

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    More about this item

    Keywords

    VIX options; Stochastic volatility; Characteristic functions;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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