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The Journal of Derivatives

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VIX Futures Pricing with Affine Jump-GARCH Dynamics and Variance-Dependent Pricing Kernels

Xinglin Yang, Peng Wang and Ji Chen
The Journal of Derivatives Fall 2019, 27 (1) 110-127; DOI: https://doi.org/10.3905/jod.2019.1.075
Xinglin Yang
is a PhD candidate in the Institute of Chinese Financial Studies at Southwestern University of Finance and Economics in Chengdu, China
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Peng Wang
is a professor in the Institute of Chinese Financial Studies at Southwestern University of Finance and Economics in Chengdu, China
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Ji Chen
is a PhD candidate in the Institute of Chinese Financial Studies at Southwestern University of Finance and Economics in Chengdu, China
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Abstract

Volatility Index (VIX) futures are among the most actively traded contracts at the Chicago Board Options Exchange, in response to the growing need for protection against volatility risk. The authors develop a new class of discrete-time and closed-form VIX futures pricing models, in which the S&P 500 returns follow the time-varying infinite-activity Normal Inverse Gaussian (NIG) and finite-activity compound Poisson (CP) jump-GARCH models, and which are risk-neutralized by the variance-dependent pricing kernel used by Christoffersen et al. (2013). They estimate these models using several data sets, including the S&P 500 returns, VIX Index, and VIX futures. The empirical results indicate that the time-varying NIG and CP jump-GARCH models significantly outperform the Heston-Nandi (HN) GARCH model in asset returns fitting and VIX futures pricing.

TOPICS: Futures and forward contracts, derivatives

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The Journal of Derivatives: 27 (1)
The Journal of Derivatives
Vol. 27, Issue 1
Fall 2019
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VIX Futures Pricing with Affine Jump-GARCH Dynamics and Variance-Dependent Pricing Kernels
Xinglin Yang, Peng Wang, Ji Chen
The Journal of Derivatives Aug 2019, 27 (1) 110-127; DOI: 10.3905/jod.2019.1.075

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VIX Futures Pricing with Affine Jump-GARCH Dynamics and Variance-Dependent Pricing Kernels
Xinglin Yang, Peng Wang, Ji Chen
The Journal of Derivatives Aug 2019, 27 (1) 110-127; DOI: 10.3905/jod.2019.1.075
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  • Article
    • Abstract
    • MODEL
    • RISK NEUTRALIZATION
    • VIX FUTURES PRICING THEORY
    • EMPIRICAL ANALYSIS
    • CONCLUSION
    • ADDITIONAL READING
    • ACKNOWLEDGMENTS
    • APPENDIX A
    • APPENDIX B
    • APPENDIX C
    • ENDNOTES
    • REFERENCES
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