The term structure of VIX

Session 004 – Derivatives ModelingThe Conference program's website is located at http://www.fma.org/Singapore/SingaporeProgram.htmWe extend the CBOE constant 30-day VIX to other maturities and construct daily VIX term structure data from starting date available to August 2009. We propose a simple yet powerful two-factor stochastic volatility framework for the VIXs. Our empirical analysis indicates that the framework is good at both capturing time-series dynamics of the VIXs and generating rich cross-sectional shape of the term structure. In particular, we show that the two time-varying factors may be interpreted as factors corresponding to level and slope of the VIX term structure. Moreover, we explore information content of the VIXs relative to historical volatility in forecasting future realized volatility. Consistent with previous studies, we find that the VIXs contain more information than historical volatility.postprin