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VIX derivatives, hedging and vol-of-vol risk
journal contribution
posted on 2023-06-09, 19:42 authored by Andreas KaeckAndreas Kaeck, Norman J SeegerWe study the empirical hedging performance of alternative VIX option pricing models. Recent advances in the literature find evidence of asymmetric volatility-of-volatility (similar to the leverage effect in equity markets), stochastic mean-reversion and jumps. Using such findings in our model framework, we show that while sophisticated models have superior pricing performance and can explain a range of stylized facts in the VIX derivatives market, their hedging performance is inferior to a simple Black model hedge. We also study the empirical performance of regime-dependent hedge ratio adjustments commonly applied in equity markets.
History
Publication status
- Published
File Version
- Accepted version
Journal
European Journal of Operational ResearchISSN
0377-2217Publisher
ElsevierExternal DOI
Issue
2Volume
283Page range
767-782Department affiliated with
- Accounting and Finance Publications
Research groups affiliated with
- Quantitative International Finance Network Publications
Full text available
- Yes
Peer reviewed?
- Yes