IDEAS home Printed from https://ideas.repec.org/a/kap/revdev/v28y2025i1d10.1007_s11147-025-09210-x.html
   My bibliography  Save this article

VIX maturity interpolation

Author

Listed:
  • Torben G. Andersen

    (Northwestern University
    NBER
    Canadian Derivatives Institute
    Center for Research in Energy)

  • Oleg Bondarenko

    (University of Illinois at Chicago)

  • Maria T. Gonzalez-Perez

    (Banco de España
    Center for Economic and Financial Studies)

Abstract

The VIX index is computed as a weighted average of two model-free option-implied variance measures for maturities around 30 days. This induces an interpolation error which, prior to 2014 (old VIX), could be sizable and especially pertinent under stressed market conditions. We quantify the VIX interpolation errors and identify underlying sources. We show the change to include weekly options for the VIX calculation in 2014 (new VIX) led to a tenfold average error reduction, eliminating them as a practical concern. Thus, the gap between the old and new VIX measure is a good proxy for the interpolation error. Moreover, the new Cboe VIX calculation is not backdated, so the series displays different statistical properties before and after 2014. Our analysis is relevant for a broad set of VIX-style indices worldwide, since nearly all such measures are computed exclusively from monthly options. In addition, there is growing interest in shorter-horizon VIX indices, and for such measures the interpolation errors amplify notably. Our analysis facilitates assessment of these errors and offers guidance for new robust computational algorithms. We exemplify this via an analysis of the 9-day VIX index. Finally, we compare the interpolation scheme for VIX to a pair of existing alternatives also based on monthly options. We find that such modifications can reduce the average errors, but they are neither uniformly superior nor do they resolve the basic issue satisfactorily.

Suggested Citation

  • Torben G. Andersen & Oleg Bondarenko & Maria T. Gonzalez-Perez, 2025. "VIX maturity interpolation," Review of Derivatives Research, Springer, vol. 28(1), pages 1-40, April.
  • Handle: RePEc:kap:revdev:v:28:y:2025:i:1:d:10.1007_s11147-025-09210-x
    DOI: 10.1007/s11147-025-09210-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11147-025-09210-x
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1007/s11147-025-09210-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Ian W. R. Martin & Christian Wagner, 2019. "What Is the Expected Return on a Stock?," Journal of Finance, American Finance Association, vol. 74(4), pages 1887-1929, August.
    2. Torben G. Andersen & Oleg Bondarenko & Maria T. Gonzalez-Perez, 2015. "Exploring Return Dynamics via Corridor Implied Volatility," The Review of Financial Studies, Society for Financial Studies, vol. 28(10), pages 2902-2945.
    3. Stamatis Leontsinis & Carol Alexander, 2017. "Arithmetic variance swaps," Quantitative Finance, Taylor & Francis Journals, vol. 17(4), pages 551-569, April.
    4. Ian Martin, 2017. "What is the Expected Return on the Market?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(1), pages 367-433.
    5. Bondarenko, Oleg, 2014. "Variance trading and market price of variance risk," Journal of Econometrics, Elsevier, vol. 180(1), pages 81-97.
    6. Martin G. Haas & Franziska J. Peter, 2024. "Implementing Intraday Model-Free Implied Volatility for Individual Equities to Analyze the Return–Volatility Relationship," JRFM, MDPI, vol. 17(1), pages 1-19, January.
    7. Gonzalez-Perez, Maria T. & Guerrero, David E., 2013. "Day-of-the-week effect on the VIX. A parsimonious representation," The North American Journal of Economics and Finance, Elsevier, vol. 25(C), pages 243-260.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bollerslev, Tim & Todorov, Viktor, 2023. "The jump leverage risk premium," Journal of Financial Economics, Elsevier, vol. 150(3).
    2. Kräussl, Roman & Oladiran, Tobi & Stefanova, Denitsa, 2023. "ESG as protection against downside risk," CFS Working Paper Series 708, Center for Financial Studies (CFS).
    3. Pascal François & Rémi Galarneau‐Vincent & Geneviève Gauthier & Frédéric Godin, 2022. "Venturing into uncharted territory: An extensible implied volatility surface model," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(10), pages 1912-1940, October.
    4. Fousseni Chabi-Yo & Chukwuma Dim & Grigory Vilkov, 2023. "Generalized Bounds on the Conditional Expected Excess Return on Individual Stocks," Management Science, INFORMS, vol. 69(2), pages 922-939, February.
    5. Juan M. Londono & Mehrdad Samadi, 2023. "The Price of Macroeconomic Uncertainty: Evidence from Daily Options," International Finance Discussion Papers 1376, Board of Governors of the Federal Reserve System (U.S.).
    6. Bekaert, Geert & Hoerova, Marie & Xu, Nancy, 2023. "Risk, Monetary Policy and Asset Prices in a Global World," CEPR Discussion Papers 18229, C.E.P.R. Discussion Papers.
    7. Angelo Aspris & Ester Félez‐Viñas & Sean Foley & Hamish Malloch & Jiri Svec, 2024. "The market risk premium in Australia: Forward‐looking evidence from the options market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(4), pages 3951-3972, December.
    8. Foley, Sean & Li, Simeng & Malloch, Hamish & Svec, Jiri, 2022. "What is the expected return on Bitcoin? Extracting the term structure of returns from options prices," Economics Letters, Elsevier, vol. 210(C).
    9. Geert Bekaert & Eric C. Engstrom & Nancy R. Xu, 2022. "The Time Variation in Risk Appetite and Uncertainty," Management Science, INFORMS, vol. 68(6), pages 3975-4004, June.
    10. Roberto Marfè, 2015. "Labor Rigidity and the Dynamics of the Value Premium," Carlo Alberto Notebooks 429, Collegio Carlo Alberto.
    11. Lukas Kremens & Ian Martin, 2019. "The Quanto Theory of Exchange Rates," American Economic Review, American Economic Association, vol. 109(3), pages 810-843, March.
    12. Ian W. R. Martin & Dimitris Papadimitriou, 2022. "Sentiment and Speculation in a Market with Heterogeneous Beliefs," American Economic Review, American Economic Association, vol. 112(8), pages 2465-2517, August.
    13. Marfè, Roberto & Pénasse, Julien, 2024. "Measuring macroeconomic tail risk," Journal of Financial Economics, Elsevier, vol. 156(C).
    14. Alexander, Carol & Rauch, Johannes, 2021. "A general property for time aggregation," European Journal of Operational Research, Elsevier, vol. 291(2), pages 536-548.
    15. Hardeep Singh Mundi, 2023. "Risk neutral variances to compute expected returns using data from S&P BSE 100 firms—a replication study," Management Review Quarterly, Springer, vol. 73(1), pages 215-230, February.
    16. Irma Alonso & Pedro Serrano & Antoni Vaello-Sebastià, 2021. "The impact of heterogeneous unconventional monetary policies on the expectations of market crashes," Working Papers 2127, Banco de España.
    17. Mathias Krogh & Giovanni Pellegrino, "undated". "Real Activity and Uncertainty Shocks: The Long and the Short of It," "Marco Fanno" Working Papers 0310, Dipartimento di Scienze Economiche "Marco Fanno".
    18. Iwanicz-Drozdowska Małgorzata & Rogowicz Karol & Smaga Paweł, 2023. "Market-moving events and their role in portfolio optimization of generations X, Y, and Z," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 59(4), pages 371-397, December.
    19. Yuan Liao & Xinjie Ma & Andreas Neuhierl & Zhentao Shi, 2023. "Economic Forecasts Using Many Noises," Papers 2312.05593, arXiv.org, revised Dec 2023.
    20. Back, Kerry & Crotty, Kevin & Kazempour, Seyed Mohammad, 2022. "Validity, tightness, and forecasting power of risk premium bounds," Journal of Financial Economics, Elsevier, vol. 144(3), pages 732-760.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:revdev:v:28:y:2025:i:1:d:10.1007_s11147-025-09210-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.