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

See all articles by Zhongjin Lu

Zhongjin Lu

University of Georgia - Department of Finance

Yingzi Zhu

Tsinghua University - School of Economics & Management

Date Written: April 4, 2009

Abstract

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

Lu, Zhongjin and Zhu, Yingzi, Volatility Components: The Term Structure Dynamics of VIX Futures (April 4, 2009). Journal of Futures Markets, Vol. 30, No. 3, pp. 230 - 256, April 2009, Available at SSRN: https://ssrn.com/abstract=1598565

Zhongjin Lu

University of Georgia - Department of Finance ( email )

Terry College of Business
Athens, GA 30602-6254
United States

Yingzi Zhu (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China
+86-10-62786041 (Phone)

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