VIX Option Analzyer
SciComp’s VIX Option Analyzer is a stand-alone, ready-to-use module that calibrates a universal volatility model jointly to SPX and VIX options while generating prices and sensitivities under the calibrated model. The calibrated model comprises either parametric or non-parametric local volatility surface, a mean reverting stochastic volatility multiplier and simultaneous jumps in both asset level and volatility. All three components - local volatility, stochastic volatility and jumps are required to simultaneously match both SPX and VIX volatility surfaces. The calibrated model generates prices and sensitivities for traded SPX and VIX options and is ideally suited for identifying arbitrage opportunities or pricing and hedging OTC volatility contracts.
The model is calibrated using both forward (Fokker-Planck) and traditional backward PDE solutions. For the non-parametric local volatility option, given a set of stochastic volatility and jump parameters, the local volatility surface is determined such that all SPX implied volatilities are matched. These stochastic volatility and jump parameters are calibrated using a least squares optimizer to yield a best fit to VIX volatility smiles at a selected expiration or expirations. For the parametric local volatility option, stochastic volatility, jump and local volatility parameters are calibrated simultaneously, typically for a single VIX expiration and one or more nearby SPX expirations. Sensitivities of both SPX and VIX options to model parameters are provided.
In addition to option prices and sensitivities, calibrated model parameters (local volatility surface and stochastic volatility and jump parameters) are output.
Whether you choose the stand-alone VIX Option Analyzer, or choose to pair it with the SciFinance code synthesis engine for pricing other volatility contracts, you will have a powerful tool for volatility trading and risk management.
The VIX Option Analyzer is available as an Excel spread sheet and add-in or as a Windows/Linux executable.
Use with SciFinance
SciFinance, SciComp’s ground-breaking software for building derivative pricing models, is ideally suited for supporting the in-house development of volatility models. SciFinance eliminates programming by automatically translating model specifications for any financial derivative into fully documented C-family source code.
SciFinance provides users the ability to develop PDE and Monte Carlo based pricing models for vanilla and exotic volatility and variance contracts in minutes. A suite of example pricer specifications employing the universal model is available as are specifications for the models employed in the VIX Option Analyzer. Using these, users can build custom calibration engines.
Whether you choose the standalone VIX Option Analyzer, or choose to pair it with the SciFinance code synthesis engine for pricing other volatility contracts, you will have a powerful tool for volatility trading.
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