Papers › Closed-form solutions for VIX derivatives in a Legendre empirical model
Closed-form solutions for VIX derivatives in a Legendre empirical model
Ying-Li Wang, Cheng-Long Xu, Ping He
In this paper, we introduce a data-driven, single-parameter Markov diffusion model for the VIX. The volatility factor evolves in (-1,1) with a uniform invariant distribution ensured by Legendre polynomials, mapped to the empirical distribution. We derive analytical series solutions for VIX futures and options using separation of variables to solve the Feynman-Kac PDE. Compared to the 3/2 model, our approach offers equal or superior accuracy and flexibility, providing an efficient, robust alternative for VIX pricing and risk management. Code and data are available at github.com/gagawjbytw/empirical-VIX.
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