 VIX valuation and its futures pricing through a generalized affine realized volatility model with hidden components and jumpQi Wang and Zerong Wang Journal of Banking & Finance, 2020, vol. 116, issue C Abstract: In this paper, we provide several theoretically relevant and empirically significant improvements to the general affine realized volatility (GARV) model of Christoffersen et al. (2014). We impose hidden volatility components in both the return-based conditional variance and the realized variance and augment their combination with another jump component. This new composition nests within a common framework several empirically well-tested models such as the GARV model mentioned above. To facilitate practical implementations we obtain the closed-form formulas to evaluate VIX and its futures through a variance-dependent kernel. Our empirical studies demonstrate that the volatility-component specification provides a further evident improvement in VIX forecasting and its futures pricing across maturity and volatility levels; more importantly, these hybrid and hidden features turn out to be complements rather than substitutes, and their prominence is further intensified by the jump. Keywords: GARCH; Realized volatility; Volatility component; VIX Futures pricing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:116:y:2020:i:c:s0378426620301114 DOI: 10.1016/j.jbankfin.2020.105845 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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