Does historical volatility term structure contain valuable in-formation for predicting volatility index futures?

Juliusz Jabłecki (), Ryszard Kokoszczyński, Pawel Sakowski, Robert Ślepaczuk and Piotr Wójcik

No 2014-18, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: We suggest that the term structure of volatility futures (e.g. VIX futures) shows a clear pattern of dependence on the current level of VIX index. At the low level of VIX (below 20) the term structure is highly upward sloping; at the high VIX level (over 30) it is strongly downward sloping. We use those features to better predict future volatility and index futures. We begin by introducing some quantitative measures of volatility term structure (VTS) and volatility risk premium (VRP). We use them further to estimate the distance between the actual value and the fair (model) value of the VTS. We find that this distance has significant predictive power for volatility futures and index futures and we use this feature to design a simple strategy to invest in VIX index futures and S&P500.

Keywords: volatility term structure; volatility risk premium; volatility and index futures; realized volatility; implied volatility; investment strategies; returns forecasting; efficient risk and return measures (search for similar items in EconPapers)
JEL-codes: C22 C61 G11 G14 G15 G23 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2014
New Economics Papers: this item is included in nep-for and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP135.pdf First version, 2014 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2014-18

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