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I have two question.

Does an option on volatility control index exist? If I google it, it seems like there is such an option, but I can't find the option on any of exchanges. So this is my first question.

Is it possible that the option can be OTC? From my knowledge, options are all listed on the exchange.

Thanks in advance!

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  • $\begingroup$ Not all options are exchange listed. $\endgroup$ – pyCthon Jun 22 '15 at 21:14
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    $\begingroup$ +1 beause I did not know that "Volatility Control Indices" exist. Who publishes them? Where? Thanks! $\endgroup$ – Richard Jun 23 '15 at 6:16
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There does exist some volatility control indexes (e.g., see page 37 of the S & P index methodology, which can be downloaded from http://ca.spindices.com/documents/methodologies/methodology-index-math.pdf?force_download=true), and also options on them, which are usually embedded in certain structured notes (e.g., google "Risk Aligned Deposit Notes").

However, these are mainly OTC based. For valuation, they usually do not have analytical formulas, and Monte Carlo simulation should be used. However, in practice, the trader likes to value them at the controlled volatility levels, that is, assuming constant volatility, in a so called conservativeness sense.

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