Extreme-Strike Comparisons and Structural Bounds for SPX and VIX Options

Andrew Papanicolaou

Abstract

This article explores relationships 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 re ection of the extremestrike asymptotics of VIX options, and vice versa. This relationship can be quantified using moment formulas in a model-free way. Comparison formulas are presented along with various examples of stochastic volatility models.

Keywords: VIX options, moment formulas, extreme strikes.

AMS Subject Classification: Primary 60.