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Volatility Components: Evidence from VIX Futures Market

Volatility Components: Evidence from VIX Futures Market


Coauthor(s): Lu, Zhongjin, and Yingzi Zhu
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Abstract
In this paper we analyze CBOE VIX futures price time series data from Mar. 2004 to Feb. 2008. We derive a new pricing framework for VIX futures that is convenient to study variance term structure dynamics. Our main contribution to existing literature is the identification of the number of factors implicit in VIX futures term structure. We find that three-factor model is ideal to characterize the variance term structure. We further construct and estimate structured two- and three-factor models to identify the components and find similar results.

Source: Journal of Futures Markets
Exact Citation:
Lu, Zhongjin, and Yingzi Zhu "Volatility Components: Evidence from VIX Futures Market." Journal of Futures Markets 30, no.3 (2010): 230 – 256.
Volume: 30
Issue: 3
Pages: 230 – 256
Date: 2010