Inferring information from the S&P 500, CBOE VIX,and CBOE SKEW indices |
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| Authors: | Jiling Cao Xinfeng Ruan Wenjun Zhang |
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| Institution: | 1. Department of Mathematical Sciences, School of Engineering, Computer and Mathematical Sciences, Auckland University of Technology, Auckland, New Zealand;2. Department of Accountancy and Finance, Otago Business School, University of Otago, Dunedin, New Zealand |
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| Abstract: | This paper compares the information extracted from the S&P 500, CBOE VIX, and CBOE SKEW indices for the S&P 500 index option pricing. Based on our empirical analysis, VIX is a very informative index for option prices. Whether adding the SKEW or the VIX term structure can improve the option pricing performance depends on the model we choose. Roughly speaking, the VIX term structure is informative for some models, while the SKEW is very noisy and does not contain much important information for option prices. This paper also extends Zhang et al. (2017, J Futures Markets, 37, 211–237) into three typical affine models. |
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| Keywords: | affine model CBOE SKEW CBOE VIX MCMC option pricing SPX term structure |
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