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Title: VIX derivatives valuation: The effects of jump contagion Authors:  Shan Lu - University of Kent (United Kingdom) [presenting]
Euan Phimister - University of Aberdeen and University of Stellenbosch (United Kingdom)
Abstract: The purpose is to analyze whether allowing jump contagion improves the performance of VIX option pricing models in terms of pricing and hedging. Based on an affine jump-diffusion with double jumps, we consider a general jump structure that subsumes both Poisson and Hawkes jumps, as well as models with diffusion-driven jumps, two vol-of-vol factors, and a model that allows for contagions between negative and positive jumps. We derive the semi-closed form option pricing formulas and local minimum-variance hedge ratios for the models. We show that, overall, allowing for jump contagion improves the model performance.