A Simplified Pricing Model for Volatility Futures

Journal of Future Markets, Volume 31, Issue 4, April 2011, Pages 307-339

39 Pages Posted: 23 May 2019

See all articles by Brice V. Dupoyet

Brice V. Dupoyet

Florida International University - College of Business Administration - Finance

Robert T. Daigler

Florida International University (FIU) - Department of Finance

Zhiyao Chen

The Chinese University of Hong Kong (CUHK) - Department of Finance

Date Written: March 26, 2011

Abstract

We develop a general model to price VIX futures contracts. The model is adapted to test both the constant elasticity of variance (CEV) and the Cox–Ingersoll–Ross formulations, with and without jumps. Empirical tests on VIX futures prices provide out-of-sample estimates within 2% of the actual futures price for almost all futures maturities. We show that although jumps are present in the data, the models with jumps do not typically outperform the others; in particular, we demonstrate the important benefits of the CEV feature in pricing futures contracts. We conclude by examining errors in the model relative to the VIX characteristics.

Keywords: volatility, VIX futures

JEL Classification: G13, G14

Suggested Citation

Dupoyet, Brice and Daigler, Robert T. and Chen, Zhiyao, A Simplified Pricing Model for Volatility Futures (March 26, 2011). Journal of Future Markets, Volume 31, Issue 4, April 2011, Pages 307-339. Available at SSRN: https://ssrn.com/abstract=3360713 or http://dx.doi.org/10.2139/ssrn.3360713

Brice Dupoyet (Contact Author)

Florida International University - College of Business Administration - Finance ( email )

University Park, RB 209 A
11200 SW 8th Street
Miami, FL 33199
United States
305-348-3328 (Phone)
305-348-4245 (Fax)

Robert T. Daigler

Florida International University (FIU) - Department of Finance ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States
305-348-3325 (Phone)
305-348-4245 (Fax)

Zhiyao Chen

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong

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