Extreme-Strike Comparisons and Structural Bounds for SPX and VIX Options
arXiv:2101.00299 · doi:10.1137/141001615
Abstract
This article explores the relationship between the SPX and VIX options markets. High-strike VIX call options are used to hedge tail risk in the SPX, which means that SPX options are a reflection of the extreme-strike asymptotics of VIX options, and vice versa. This relationship can be quantified using moment formulas in a model-free way. Comparisons are made between VIX and SPX implied volatilities along with various examples of stochastic volatility models.
Special Thank You to Roger Lee for your help in this paper