The Hurdles to Replicating VIX

The result of the inability of firms to efficiently replicate the performance of VIX in a portfolio prohibits any arbitrage trading between the index and futures contracts based on the index. This sort of trading is common with respect to just about every financial futures market with the exception of VIX futures. However, with respect to VIX, attempting to arbitrage between the implied volatility of SPX options as represented by VIX is cost prohibitive. This is not to say that there are not situations where VIX futures or options may be traded against SPX options in a sort of spread trade, but as far as an arbitrage situation, these do not currently exist.

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