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2010•Encyclopedia of Quantitative FinanceRequires access

Volatility Index Options

Eric Benhamou, Marian Ciuca

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Abstract

Abstract Volatility index options are options on a volatility index. Volatility index options enable one to take a pure volatility exposure without the need to take positions in the index itself and without the need to delta‐hedge. We describe how volatility indices—such as the VIX—are defined and discuss pricing procedures for options on such indices.

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Abstract Volatility index options are options on a volatility index. Volatility index options enable one to take a pure volatility exposure without the need to take positions in the index itself and without the need to delta‐hedge. We describe how volatility indices—such as the VIX—are defined and discuss pricing procedures for options on such indices.

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Available abstract

Abstract Volatility index options are options on a volatility index. Volatility index options enable one to take a pure volatility exposure without the need to take positions in the index itself and without the need to delta‐hedge. We describe how volatility indices—such as the VIX—are defined and discuss pricing procedures for options on such indices.

Key concepts: Volatility (finance), Volatility swap, Volatility smile, Index (typography), Implied volatility, Forward volatility, Variance swap, Hedge

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