Publication: A remark on Lin's and Chang's pager 'Consistent modelling of S&P500 and VIX derivatives'
A remark on Lin's and Chang's pager 'Consistent modelling of S&P500 and VIX derivatives'
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Leippold, M., Cheng, J., Ibraimi, M., & Zhang, J. E. (2012). A remark on Lin’s and Chang’s pager “Consistent modelling of S&P500 and VIX derivatives.” Journal of Economic Dynamics and Control, 36(5), 7'8-715. https://doi.org/10.1016/j.jedc.2012.01.002
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Lin and Chang (2009, 2010) establish a VIX futures and option pricing theory when modeling S&P 500 index by using a stochastic volatility process with asset return and volatility jumps. In this note, we prove that Lin and Chang's formula is not an exact solution of their pricing equation. More generally, we show that the characteristic function of their pricing equation cannot be exponentially affine, as proposed by them. Furthermore, their formula cannot serve as a reasonable approximation. Using the Heston (1993) model as a special
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Creators (Authors)
- Cheng, Jun
- Ibraimi, Meriton
- Zhang, Jin E
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Citations
Leippold, M., Cheng, J., Ibraimi, M., & Zhang, J. E. (2012). A remark on Lin’s and Chang’s pager “Consistent modelling of S&P500 and VIX derivatives.” Journal of Economic Dynamics and Control, 36(5), 7'8-715. https://doi.org/10.1016/j.jedc.2012.01.002
