Article2016

Pricing the CBOE VIX Futures with the Heston–Nandi GARCH Model

Tianyi Wang · Yiwen Shen · Yueting Jiang · Zhuo Huang

54 citations0/0 files storedJournal of Futures Markets

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Financial Risk and Volatility Modeling Stochastic processes and financial applications Market Dynamics and Volatility

Abstract

We propose a closed‐form pricing formula for the Chicago Board Options Exchange Volatility Index (CBOE VIX) futures based on the classic discrete‐time Heston–Nandi GARCH model. The parameters are estimated using several sets of data, including the S&P 500 returns, the CBOE VIX, VIX futures prices and combinations of these data sources. Based on the resulting empirical pricing performances, we recommend the use of both VIX and VIX futures prices for a joint estimation of model parameters. Such estimation method can effectively capture the variations of the market VIX and the VIX futures prices simultaneously for both in‐sample and out‐of‐sample analysis. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:641–659, 2017

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References

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2018VIX term structure and VIX futures pricing with realized volatility 2018Closed-form variance swap prices under general affine GARCH models and their continuous-time limits 2020VIX forecasting based on GARCH-type model with observable dynamic jumps: A new perspective

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