Options on Leveraged ETF: Calibrations and Error Analysis

Da Fonseca, JC
Xu, Y
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Conference Contribution
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Society for Computational Economics (SCE)

Within the standard affine stochastic volatility framework we price options on leveraged and inverse leveraged ETFs using Fourier transform. We perform a calibration analysis for a given day on options written on leveraged and inverse leveraged ETFs tracking the S&P500 that is the most actively traded ETF derivatives. We analyze the calibrated parameters and assess the ability of the Heston model to price consistently all the options. Overall we find that the Heston model allows a good fit of the smiles and that the different option sets lead to consistent underlying spot distributions.

Computing in Economics and Finance held at AI-ECON Taipei (Howard Civil Service International House), Taipei, Taiwan, 2015-06-20 to 2015-06-22
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