Under the component GARCH model of Christoffersen et al. (2008), this research provides the
analytical pricing formulae of the VIX term structure and VIX futures, points out the zero-risk
premium feature in the fully persistent model of Christoffersen et al. (2008), and examines
the pricing performances of eight nested models. Our empirical results show that decomposing conditional variance into long-run and short-run components may not be successful in describing S&P 500 Index returns, volatility indices, and VIX futures prices. Lastly, we conduct trading strategies in the VIX futures market to evaluate the economic significance of model predictions.
