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VIX derivatives: Valuation models and empirical evidence

Chien-Ling Lo, Pai-Ta Shih, Yaw-Huei Wang and Min-Teh Yu ()

Pacific-Basin Finance Journal, 2019, vol. 53, issue C, 1-21

Abstract: This study proposes an efficient approach for the pricing of VIX derivatives under the affine framework and investigates the respective value of two variance components and variance jumps in the pricing of VIX derivatives. Our numerical results show that our approach significantly reduce the computational burden. Our empirical findings provide support for the use of two-variance component models as the means of capturing the fickle term structure of VIX derivatives, and the use of variance jumps is vital when included in the long-run variance component.

Keywords: VIX derivatives; Variance components; Variance jump; Affine model (search for similar items in EconPapers)
JEL-codes: C63 G13 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:pacfin:v:53:y:2019:i:c:p:1-21