The CBOE S&P 500 Three-Month Variance Futures

31 Pages Posted: 23 Jan 2009

See all articles by Jin E. Zhang

Jin E. Zhang

University of Otago, Otago Business School, Department of Accountancy and Finance

Yuqin Huang

The University of Hong Kong

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

Zhang, Jin E. and Huang, Yuqin, The CBOE S&P 500 Three-Month Variance Futures (December 15, 2008). Available at SSRN: https://ssrn.com/abstract=1331755 or http://dx.doi.org/10.2139/ssrn.1331755

Jin E. Zhang (Contact Author)

University of Otago, Otago Business School, Department of Accountancy and Finance ( email )

Dunedin, 9054
New Zealand
64 3 479 8575 (Phone)
64 3 479 8171 (Fax)

HOME PAGE: http://sites.google.com/site/jinzhanghomepage/home

Yuqin Huang

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

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