Volatility White Papers: Power Laws & VIX Options Explained


Updated: Mar 25th, 2017 | Vance Harwood | @6_Figure_Invest

Recommended Papers

  •  Tales of the Unexpected by Andrew Haldane
    • This accessible paper (only one equation) is the best that I’ve ever read on the differences between processes accurately modeled by Gaussian/normal distributions and those better matched by power law distributions.   I have seen this distinction made many times, but this paper provided examples and reasoning that really helped me internalize the differences.   Most of our stock market computations (including Black & Scholes for option pricing) and risk management formulas assume normal (or log-normal) distributions, but this paper lays out a compelling case for why power law distributions are often a better match.

 

  • Understanding VIX Futures and Options by Dennis Dzekounoff
    • This article contains an excellent overview of the peculiarities of VIX options including their Greeks and term structure.    Most broker’s Greeks for VIX options are completely wrong to start with, but Dennis points out some other issues like steep call skew, dangerous calendars, and slower than expected theta decay.

Related Posts



Saturday, March 25th, 2017 | Vance Harwood