Empirical performance of component GARCH models in pricing VIX term structure and VIX futures

Hung-Wen Cheng, Li-Han Chang, Chien-Ling Lo and Jeffrey Tzuhao Tsai

Journal of Empirical Finance, 2023, vol. 72, issue C, 122-142

Abstract: Under the component GARCH model of Christoffersen et al. (2008), this research provides the analytical pricing formulae of the VIX term structure and VIX futures, points out the zero-risk premium feature in the fully persistent model of Christoffersen et al. (2008), and examines the pricing performances of eight nested models. Our empirical results show that decomposing conditional variance into long-run and short-run components may not be successful in describing S&P 500 Index returns, volatility indices, and VIX futures prices. Lastly, we conduct trading strategies in the VIX futures market to evaluate the economic significance of model predictions.

Keywords: VIX; VIX term structure; VIX futures; GARCH; Long-run variance (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:72:y:2023:i:c:p:122-142

DOI: 10.1016/j.jempfin.2023.03.005

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