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A Term Structure Model for VIX Futures

In English

Författare

  • Bujar Huskaj
  • Marcus Nossman

Summary, in English

This study develops a term structure model for VIX futures. Instead of deriving the VIX futures price from a model for the instantaneous variance of the S&P 500 or a model for the VIX, the VIX futures price dynamics are specified exogenously. The empirical features of VIX futures returns (positive skewness, excess kurtosis, and a decreasing volatility term structure for longer term expirations) are captured by assuming that they are normal inverse Gaussian distributed and scaled by a volatility function that is dependent on the maturity. The usefulness of the resulting model is illustrated in two applications: risk management (via calculating value at risk (VaR)) and asset pricing (via pricing hypothetical VIX options). The results show that the model provides a good fit for the empirical term structure of VIX futures, produces good VaR estimates, and is promising for use in pricing VIX options. (c) 2012 Wiley Periodicals, Inc. Jrl Fut Mark 33:421-442, 2013

Publiceringsår

2013

Språk

Engelska

Sidor

421-442

Publikation/Tidskrift/Serie

Journal of Futures Markets

Volym

33

Issue

5

Dokumenttyp

Artikel i tidskrift

Förlag

John Wiley & Sons Inc.

Ämne

  • Economics

Status

Published

ISBN/ISSN/Övrigt

  • ISSN: 1096-9934