Abstract
ABSTRACT Amidst rising trading volumes, there’s evident demand for volatility trading. This study assists Chinese stakeholders in understanding the iVIX’s functionality, offering insights for investments and policy-making. Building on the VIX option pricing model, the research introduces a novel approach: the mean-reverting logarithmic stochastic volatility Hawkes jump model (MLSVHJ). Using VIX call option data from March 9, 2020, to March 18, 2021, the MLSVHJ model outperformed four others during 2020’s three US market crashes. Additionally, this model’s parameters aligned well with theoretical expectations. However, the positive correlation observed between the iVIX and the Shanghai Composite Index prompts a reevaluation of applying global VIX standards directly to China.
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