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VIX futures

Author

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  • Jin E. Zhang
  • Yingzi Zhu

Abstract

VIX futures are exchange‐traded contracts on a future volatility index (VIX) level derived from a basket of S&P 500 (SPX) stock index options. The authors posit a stochastic variance model of VIX time evolution, and develop an expression for VIX futures. Free parameters are estimated from market data over the past few years. It is found that the model with parameters estimated from the whole period from 1990 to 2005 overprices the futures contracts by 16–44%. But the discrepancy is dramatically reduced to 2–12% if the parameters are estimated from the most recent one‐year period. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:521–531, 2006

Suggested Citation

  • Jin E. Zhang & Yingzi Zhu, 2006. "VIX futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 26(6), pages 521-531, June.
    • Handle: RePEc:wly:jfutmk:v:26:y:2006:i:6:p:521-531
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    Citations

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    Cited by:

    1. Ivan Guo & Gregoire Loeper, 2016. "Pricing Bounds for VIX Derivatives via Least Squares Monte Carlo," Papers 1611.00464, arXiv.org.
    2. Jędrzej Białkowski & Huong Dieu Dang & Xiaopeng Wei, 2017. "Does the Tail Wag the Dog? Evidence from Fund Flow to VIX ETFs and ETNs," Working Papers in Economics 17/17, University of Canterbury, Department of Economics and Finance.
    3. Barletta, Andrea & Santucci de Magistris, Paolo & Violante, Francesco, 2019. "A non-structural investigation of VIX risk neutral density," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 1-20.
    4. Bujar Huskaj & Marcus Nossman, 2013. "A Term Structure Model for VIX Futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 33(5), pages 421-442, May.
    5. Liu, Qiang & Guo, Shuxin & Qiao, Gaoxiu, 2015. "VIX forecasting and variance risk premium: A new GARCH approach," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 314-322.
    6. Tim Leung & Jiao Li & Xin Li & Zheng Wang, 2016. "Speculative Futures Trading under Mean Reversion," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 23(4), pages 281-304, December.
    7. Wei Lin & Shenghong Li & Xingguo Luo & Shane Chern, 2015. "Consistent Pricing of VIX and Equity Derivatives with the 4/2 Stochastic Volatility Plus Jumps Model," Papers 1510.01172, arXiv.org, revised Nov 2015.
    8. Eraker, Bjørn & Wang, Jiakou, 2015. "A non-linear dynamic model of the variance risk premium," Journal of Econometrics, Elsevier, vol. 187(2), pages 547-556.
    9. Gonzalez-Perez, Maria T., 2015. "Model-free volatility indexes in the financial literature: A review," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 141-159.
    10. Li, Jing & Li, Lingfei & Zhang, Gongqiu, 2017. "Pure jump models for pricing and hedging VIX derivatives," Journal of Economic Dynamics and Control, Elsevier, vol. 74(C), pages 28-55.
    11. Jiao Li, 2016. "Trading VIX Futures under Mean Reversion with Regime Switching," Papers 1605.07945, arXiv.org, revised Jun 2016.
    12. Campos, I. & Cortazar, G. & Reyes, T., 2017. "Modeling and predicting oil VIX: Internet search volume versus traditional mariables," Energy Economics, Elsevier, vol. 66(C), pages 194-204.
    13. Konstantinidi, Eirini & Skiadopoulos, George, 2011. "Are VIX futures prices predictable? An empirical investigation," International Journal of Forecasting, Elsevier, vol. 27(2), pages 543-560.
    14. Eraker, Bjørn & Wu, Yue, 2017. "Explaining the negative returns to volatility claims: An equilibrium approach," Journal of Financial Economics, Elsevier, vol. 125(1), pages 72-98.
    15. Lin, Yueh-Neng & Chang, Chien-Hung, 2010. "Consistent modeling of S&P 500 and VIX derivatives," Journal of Economic Dynamics and Control, Elsevier, vol. 34(11), pages 2302-2319, November.
    16. Alexander Badran & Beniamin Goldys, 2015. "A Market Model for VIX Futures," Papers 1504.00428, arXiv.org.
    17. Andrea Barletta & Paolo Santucci de Magistris & Francesco Violante, 2016. "Retrieving Risk-Neutral Densities Embedded in VIX Options: a Non-Structural Approach," CREATES Research Papers 2016-20, Department of Economics and Business Economics, Aarhus University.
    18. Lin, Yueh-Neng & Lin, Anchor Y., 2016. "Using VIX futures to hedge forward implied volatility risk," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 88-106.
    19. Zhu, Song-Ping & Lian, Guang-Hua, 2015. "Pricing forward-start variance swaps with stochastic volatility," Applied Mathematics and Computation, Elsevier, vol. 250(C), pages 920-933.

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