RT Journal Article
SR Electronic
T1 Pricing VIX Futures under GJR-GARCH Process: <em>An Analytical Approximation Method</em>
JF The Journal of Derivatives
FD Institutional Investor Journals
SP jod.2020.1.096
DO 10.3905/jod.2020.1.096
A1 Xie Haibin
A1 Zhou Mo
A1 Tinghui Ruan
YR 2020
UL https://pm-research.com/content/early/2020/04/28/jod.2020.1.096.abstract
AB 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, optionsKey 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.