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Could someone tell me a common method for pricing VIX Options please?

Do I need to use a Stochastic Vol Model? Or Local Vol Model is suitable as well?

Should the model be modelling S&P 500 and then recalculate the VIX Index? Or model the VIX Index directly?


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Do you understand exactly how the VIX index is derived? –  Matt Wolf Nov 6 '13 at 14:34
Market makers commonly just treat these as "normal" options that happen to have an unusual skew. This is a roundabout way of asking: what will your hypothetical pricing method be used for? –  Brian B Nov 6 '13 at 16:19

1 Answer 1

I am ignorant to VIX option pricing but I would start with this: The performance of VIX option pricing models: Empirical evidence beyond simulation -- Working paper version

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