PT  - JOURNAL ARTICLE
AU  - Xinglin Yang
AU  - Peng Wang
AU  - Ji Chen
TI  - VIX Futures Pricing with Affine Jump-GARCH Dynamics and Variance-Dependent Pricing Kernels
AID  - 10.3905/jod.2019.1.075
DP  - 2019 Apr 19
TA  - The Journal of Derivatives
PG  - jod.2019.1.075
4099  - https://pm-research.com/content/early/2019/08/28/jod.2019.1.075.short
4100  - https://pm-research.com/content/early/2019/08/28/jod.2019.1.075.full
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.