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Volatility components: The term structure dynamics of VIX futures

✍ Scribed by Zhongjin Lu; Yingzi Zhu

Publisher
John Wiley and Sons
Year
2009
Tongue
English
Weight
283 KB
Volume
30
Category
Article
ISSN
0270-7314

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✦ Synopsis

Abstract

In this study we empirically study the variance term structure using volatility index (VIX) futures market. We first derive a new pricing framework for VIX futures, which is convenient to study variance term structure dynamics. We construct five models and use Kalman filter and maximum likelihood method for model estimations and comparisons. We provide evidence that a third factor is statistically significant for variance term structure dynamics. We find that our parameter estimates are robust and helpful to shed light on economic significance of variance factor model. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:230–256, 2010

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