The CBOE S&P 500 Three-Month Variance Futures
31 Pages Posted: 23 Jan 2009
Date Written: December 15, 2008
Abstract
In this paper, we study the market of the CBOE S&P 500 three-month variance futures that were listed on May 18, 2004. By using a simple mean-reverting stochastic volatility model for the S&P 500 index, we present a linear relation between the price of fixed time-to-maturity variance futures and the VIX^2. The model prediction is supported by empirical tests. We find that a model with a fixed mean-reverting speed of 1.2929 and a daily-calibrated floating long-term mean level has a good fit to the market data between May 18, 2004 and August 17, 2007. The market price of volatility risk estimated from the 30-day realized variance and VIX^2 has a mean value of -19.1184.
Keywords: Volatility trading, Variance Futures, VIX
JEL Classification: G13
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
A Non-Linear Dynamic Model of the Variance Risk Premium
By Jiakou Wang and Bjorn Eraker
-
A Non-Linear Dynamic Model of the Variance Risk Premium
By Bjorn Eraker and Jiakou Wang
-
Complex Times: Asset Pricing and Conditional Moments Under Non-Affine Diffusions
-
The Market for Volatility Trading; Vix Futures
By Menachem Brenner, Jinghong Shu, ...
-
Reduced-Form Valuation of Callable Corporate Bonds: Theory and Evidence
By Robert A. Jarrow, Haitao Li, ...
-
Reduced-Form Valuation of Callable Corporate Bonds: Theory and Evidence
By Robert A. Jarrow, Haitao Li, ...
-
The Sensitivity of American Options to Suboptimal Exercise Strategies
-
The Optimal Method for Pricing Bermudan Options by Simulation
By Alfredo Ibañez and Carlos Velasco
-
Hermite Polynomial Based Expansion of European Option Prices
By Dacheng Xiu