Volatility Components: The Term Structure Dynamics of VIX Futures
Journal of Futures Markets, Vol. 30, No. 3, pp. 230 - 256, April 2009
33 Pages Posted: 4 May 2010
Date Written: April 4, 2009
In this paper we empirically study the variance term structure using VIX futures market. We first derive a new pricing framework for VIX futures that is convenient to study variance term structure dynamics. We construct five models and use Kalman filter and Maximum Likelihood method for model estimations and comparisons. We provide evidence that a third factor is statistically significant for variance term structure dynamics. We find that our parameter estimates are robust and helpful to shed light on economic significance of variance factor model.
Keywords: VIX futures, loglinear model, Kalman filter, Principal Component Analysis (PCA), variance term structure
JEL Classification: G13
Suggested Citation: Suggested Citation