Directly pricing VIX futures: the role of dynamic volatility and jump intensity

Tianyi Wang (), Sicong Cheng, Fangsheng Yin and Mei Yu

Applied Economics, 2022, vol. 54, issue 32, 3678-3694

Abstract: We extend the direct pricing framework and propose a new generalized model for VIX futures by adding the time-varying component volatility as well as jump intensity to the logarithm of underlying VIX series. We also switch to the normal jump component on which the simpler and faster analytical filter can be applied. Compared with the nested benchmark models, these extensions are supported by significant pricing performance improvements both in- and out-of-sample. In particular, our generalized model can reduce the pricing errors substantially in the high VIX level period and for long maturity contracts. Our research highlights the importance of those newly added features of the VIX series when pricing VIX derivatives.

Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2021.2016592 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:54:y:2022:i:32:p:3678-3694

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2021.2016592

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().