Article by: Dennis Dzekounoff
Published by: FuturesMag.com
Date: 18 Aug 2010
“Since the Chicago Board Options Exchange (CBOE) introduced futures and, subsequently, options on its Volatility Index, or VIX, traders have asked why the contracts don’t necessarily track the underlying in the same way other equity futures track their indexes. Others may wonder why the put-call parity is violated for VIX options. Then, there are the options that trade underwater, the vastly different implied volatilities for each expiration cycle and the question of arbitrage between S&P 500 derivatives and VIX contracts.
“Thankfully, all of these questions can be answered with theoretical research on VIX futures and options pricing and, along the way, can offer guidance to some practical applications of these products. Our findings also apply to recently launched VSTOXX index futures and options listed on Eurex.”
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