Gruenbichler and Longstaff (1996) model (or GL (1996)) for valuation of volatility derivatives is presented. This model assumes diffusion processes for the dynamics of the underlying, and, based on the general approach of risk-neutral evaluation, simple closed- form expressions for valuation of options and futures on volatility index are derived. In this paper analysis of VSTOXX options has been done, and GL (1996) model has been calibrated to call options on volatility index (VSTOXX) traded on 2014-03-31. The paper is constructed as follows. Section 1 presents basic concepts of option management. Section 2 describes Gruenbichler and Longstaff (1996) model. Section 3 starts with application of basic concepts discussed in Section 1 for analysis of options on VSTOXX, at the end of this section calibration of GL (1996) to the real data is presented. In Section 5 main conclusions are briefly represented.
romanlykhnenko/valuation_volatility_derivatives
Valuation of volatility derivatives based on Gruenbichler and Longstaff (1996) model
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