RT Journal Article
SR Electronic
T1 VIX Futures Pricing with Affine Jump-GARCH Dynamics and Variance-Dependent Pricing Kernels
JF The Journal of Derivatives
FD Institutional Investor Journals
SP jod.2019.1.075
DO 10.3905/jod.2019.1.075
A1 Xinglin Yang
A1 Peng Wang
A1 Ji Chen
YR 2019
UL https://pm-research.com/content/early/2019/04/19/jod.2019.1.075.abstract
AB 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. We 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). We 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.