Abstract
The introduction of VIX futures and options has been a major financial innovation that will facilitate to a great extent the hedging of volatility risk. Using VIX futures, S&P 500 futures, S&P 500 options and S&P 500 futures options, this study examines alternative models within a delta-vega neutral strategy. VIX futures are found to outperform vanilla options in hedging a short position in S&P 500 futures call options. In particular, incorporating stochastic volatility and price jumps enhances hedging performance.
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