Options on Leveraged ETF: Calibrations and Error Analysis
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Da Fonseca, JC
Xu, Y
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Society for Computational Economics (SCE)
Abstract
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.
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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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NOTICE: this is the author’s version of a work that was accepted for publication. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in (see Citation). The original publication is available at (see Publisher's Version).