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stochastix


Total Posts: 8
Joined: Oct 2020
 
Posted: 2020-12-04 18:47
Please forgive my ignorance but what exactly do they mean by forward variance curve when referring to SPX/VIX for instance? Can I derive this from the futures term structure (prices) ?



I guess so since VIX futures are the expected value of the VIX index at a future date. They are also the expected value of the price of a one-month variance swap on this same date. The risk profile of a VIX futures position is similar to a one-month forward starting variance swap with a start date of the VIX expiration.

Yes, its proved in

http://www-2.rotman.utoronto.ca/~hull/TechnicalNotes/TechnicalNote24.pdf

that they are identical when the interest rate is constant. works better for short durations


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