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arXiv · 2101.00299

Extreme-Strike Comparisons and Structural Bounds for SPX and VIX Options

Andrew Papanicolaou
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Abstract

This article explores the relationship between the SPX and VIX options markets. High-strike VIX call options are used to hedge tail risk in the SPX, which means that SPX options are a reflection of the extreme-strike asymptotics of VIX options, and vice versa. This relationship can be quantified using moment formulas in a model-free way. Comparisons are made between VIX and SPX implied volatilities along with various examples of stochastic volatility models.

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Andrew Papanicolaou. 2021-01-01. Extreme-Strike Comparisons and Structural Bounds for SPX and VIX Options. https://doi.org/10.1137/141001615

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