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Abstract
This article investigates the performance of GJR-GARCH in pricing VIX futures. We first establish a theoretical relationship between VIX futures price and the model implied VIX, from which an analytical approximation pricing formula is then obtained. We compare the pricing performance of the GJR-GARCH model with the Heston-Nandi model. The results show significant dominance of the GJR-GARCH over the Heston-Nandi in both in-sample and out-of-sample VIX futures pricing.
TOPICS: Futures and forward contracts, options
Key Findings
• A theoretical relationship between VIX futures price and the model implied VIX is established.
• An analytical approximation pricing formula for VIX futures under the GJR-GARCH is obtained.
• The empirical results show that the analytical approximation pricing method under GJR-GARCH outperforms the analytical pricing method under the Heston-Nandi model.
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Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
UK: 0207 139 1600