Reasonable Evaluation Of VIX Options For Taiwan Stock Index
Examining on the Taiwan VIX data from December 2006 to January 2018, the main result reveals that the estimated options prices generally have the descending order of GARCH > BS > SQR > LOU. Restated, when VIX has hetroscedasticity characteristic, the Black-Scholes model could undervalue the VIX options. Additionally, when VIX has no mean-reverting property, the SQR and LOU models could seriously undervalue the options, especially for the long-term maturity options. We expect that the Taiwan VIX options will start trading in the next few years, and we believe that our research results can provide future references for the investors and securities companies in evaluating the VIX options.
Index Terms: Area-efficient, VIX Options Pricing;GARCH; Black-Scholes Model; Mean-Reverting.