Forecasting VIX Using Filtered Historical Simulation*

A GARCH Option Pricing Model with Filtered Historical Simulation

Yushuang Jiang and Emese Lazar

Journal of Financial Econometrics, 2022, vol. 20, issue 4, 655-680

Abstract: We propose a new VIX forecast method using Generalized Autoregressive Conditional Heteroscedasticity models based on the filtered historical simulation put forward in Barone-Adesi, Engle, and Mancini (2008). The flexible change of measure accommodates for non-normalities such as negative skewness and positive excess kurtosis. We present an application for four well-established volatility indices (VIX9D, VIX, VIX3M, and VIX6M). Our results show that our proposed estimation method outperforms the Normal-VIX model of Hao and Zhang (2013) both in-sample and out-of-sample. Furthermore, the use of volatility indices reduces the computational burden significantly compared to the options-based pricing method.

Keywords: GARCH; historical filtered simulation; CBOE volatility index (search for similar items in EconPapers)
JEL-codes: C53 C58 G17 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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