Time-Varying Skew in VIX Derivatives Pricing

2021 ◽  
Author(s):  
Peixuan Yuan
Keyword(s):  
Reduced Form ◽  
Time Varying ◽  
Derivatives Pricing ◽  
Nested Models ◽  
Stochastic Jump ◽  
Out Of Sample ◽  
Jump Intensity ◽  
Form Model ◽  
Reduced Form Model ◽  
Vix Derivatives

This paper proposes a new reduced-form model for the pricing of VIX derivatives that includes an independent stochastic jump intensity factor and cojumps in the level and variance of VIX, while allowing the mean of VIX variance to be time varying. I fit the model to daily prices of futures and European options from April 2007 through December 2017. The empirical results indicate that the model significantly outperforms all other nested models and improves on benchmark by 21.6% in sample and 31.2% out of sample. The model more accurately portrays the tail behavior of VIX risk-neutral distribution for both short and long maturities, as it better captures the time-varying skew found to be largely independent of the level of the VIX smile. This paper was accepted by Kay Giesecke, finance.

A Reduced Form Model of Default Spreads with Markov-Switching Macroeconomic Factors

2010 ◽  
Author(s):  
Georges Dionne ◽  
Genevieve Gauthier ◽  
Khemais Hammami ◽  
Mathieu Maurice ◽  
Jean-Guy Simonato
Keyword(s):  
Markov Switching ◽  
Reduced Form ◽  
Macroeconomic Factors ◽  
Form Model ◽  
Reduced Form Model

scholarly journals Measuring the Impact of Promotions on Brand Switching When Consumers Are Forward Looking

2003 ◽  
Vol 40 (4) ◽  
pp. 389-405 ◽  
Author(s):  
Baohong Sun ◽  
Scott A. Neslin ◽  
Kannan Srinivasan
Keyword(s):  
Structural Model ◽  
Simulated Data ◽  
Real Data ◽  
Reduced Form ◽  
Coefficient Estimates ◽  
Dynamic Structural Model ◽  
Brand Switching ◽  
Form Model ◽  
Reduced Form Model ◽  
The Impact

Logit choice models have been used extensively to study promotion response. This article examines whether brand-switching elasticities derived from these models are overestimated as a result of rational consumer adjustment of purchase timing to coincide with promotion schedules and whether a dynamic structural model can address this bias. Using simulated data, the authors first show that if the structural model is correct, brand-switching elasticities are overestimated by stand-alone logit models. A nested logit model improves the estimates, but not completely. Second, the authors estimate the models on real data. The results indicate that the structural model fits better and produces sensible coefficient estimates. The authors then observe the same pattern in switching elasticities as they do in the simulation. Third, the authors predict sales assuming a 50% increase in promotion frequency. The reduced-form models predict much higher sales levels than does the dynamic structural model. The authors conclude that reduced-form model estimates of brand-switching elasticities can be overstated and that a dynamic structural model is best for addressing the problem. Reduced-form models that include incidence can partially, though not completely, address the issue. The authors discuss the implications for researchers and managers.

A reduced form model of default spreads with Markov-switching macroeconomic factors

2011 ◽  
Vol 35 (8) ◽  
pp. 1984-2000 ◽  
Author(s):  
Georges Dionne ◽  
Geneviève Gauthier ◽  
Khemais Hammami ◽  
Mathieu Maurice ◽  
Jean-Guy Simonato
Keyword(s):  
Markov Switching ◽  
Reduced Form ◽  
Macroeconomic Factors ◽  
Form Model ◽  
Reduced Form Model
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