What is the industry consensus (if it exists) about implied volatility calculation for options on VSTOXX (OVS)?
I've experimented with the following approach:
- Standard Black-Scholes
- VSTOXX futures as underlying prices for respective option maturities
- Assuming $q=r$
and I wasn't quite happy with the difference between call/put smiles.
I haven't tried Gruenbichler and Longstaff (GL96) yet.
UPD: After implementing GL96 and Whaley, the latter produces much better results.
This is how the smile looks for 30 and 90 days for VSTOXX with Whaley implementation:
UPD2: These numbers are in line with VIX options, where implied volatility of ATM options can reach levels of 120%-130%.