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akira


Total Posts: 2
Joined: Mar 2017
 
Posted: 2017-03-04 06:01
Hello,

I have been trying to validate the VIX fair value calculation in the following document but cannot seem to reach a close number.
http://www.powershow.com/view/1d257-NmYxO/Volatility_Derivatives_Modeling_powerpoint_ppt_presentation (sample results on page 15)

Could someone elucidate me regarding the correct calculation?
The closest I could get was the formula FairValue^2=UB^2-a*VIXVol^2/T but this still leads to an error of about 10% which is more than explainable by the interest rate alone.

Thanks,
Akira

chiral3
Founding Member

Total Posts: 5002
Joined: Mar 2004
 
Posted: 2017-03-04 12:45
Akira - I am not going to click on anything in your link so I can't see exactly what you're talking about. Looks like you're referencing an old Dupire deck. Remember that around that time they changed the way VIX was calculated. Refer to the CBOE white paper for the details on the VIX calculation:

CBOE VIX

Nonius is Satoshi Nakamoto. 物の哀れ

akira


Total Posts: 2
Joined: Mar 2017
 
Posted: 2017-03-05 01:50
Hi Chiral,

Thanks for your reply.

Yes, it is an old Dupire deck, which is a core reference in the VVIX white paper of CBOE.
Specifically, I could not validate the following parts.
p14 (formula that estimates the fair value of future VIX):


p15 (sample BBG screen that shows calculated fair values):


Any idea how I can reach the above fair values?

Thanks,
Akira
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