Empirical Performance of Component GARCH Models in Pricing VIX Term Structure and VIX Futures

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Title:	Empirical Performance of Component GARCH Models in Pricing VIX Term Structure and VIX Futures
Authors:	Hung-Wen Cheng;Li-Han Chang;Chien-Ling Lo;Jeffrey Tzuhao Tsai
Keywords:	VIX;VIX term structure;VIX futures;GARCH;Long-run variance
Date:	2023-03-11
Issue Date:	2025-03-20 09:23:01 (UTC+8)
Abstract:	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.
Relation:	Journal of Empirical Finance 72,　p.122-142
DOI:	10.1016/j.jempfin.2023.03.005
Appears in Collections:	[Graduate Institute & Department of Banking and Finance] Journal Article

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