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 Volatility Uncertainty and VIX Futures Contango: A Laplace <span>Transform Order Theorem</span>
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VIX futures are typically upward-sloping in calm markets but often invert during stress, despite lacking a deliverable underlying and a cost-of-carry anchor. We provide a model-free sufficient condition for pairwise VIX futures contango based on conditional Laplace-transform order across the variance pockets underlying the VIX. If the near-dated pocket is smaller in this order than a farther-dated pocket, the concave VIX payoff has a lower risk-neutral expectation, implying an upward futures slope. Stochastic disaster intensity and rough-volatility specifications show that low current variance and low disaster intensity support the ordering, whereas elevated variance or disaster intensity can reverse it and produce backwardation.

Keywords: VIX contango, volatility pockets, Laplace transform order, intertemporal risk perceptions

Suggested Citation: Suggested Citation

Bakshi, Gurdip S. and Crosby, John and Gao, Xiaohui and Xue, Jinming,

Volatility Uncertainty and VIX Futures Contango: A Laplace Transform Order Theorem

(September 25, 2021). Fox School of Business Research Paper Forthcoming, SMU Cox School of Business Research Paper No. 21-19, Available at SSRN: https://ssrn.com/abstract=3930703 or http://dx.doi.org/10.2139/ssrn.3930703