Volatility ETFs and ETNs

Liu, Berlinda; Dash, Srikant

doi:10.3905/jot.2012.7.1.043

Cited by 15 publications

(3 citation statements)

References 3 publications

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“…The under (out) performance of the short‐term long‐(short‐) exposure VIX futures ETPs is well documented in the literature, and can be seen in Table 1. Alexander and Korovilas (2013), Liu and Dash (2012), and Whaley (2013) suggest that the usually contango (upward‐sloping) VIX futures term structure is the driver of the underperformance of the VXX. Gehricke and Zhang (2018) are the first to model the VXXs price while accounting for the dynamic relationships between the SPX, VIX index, VIX futures and the ETN price.…”

Section: Introductionmentioning

confidence: 99%

Modeling VXX under jump diffusion with stochastic long‐term mean

Gehricke

Zhang

2020

Journal of Futures Markets

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We develop a model for the VXX, the most actively traded VIX futures exchange‐traded note, using Duffie, Pan, and Singleton's affine jump diffusion framework, where the volatility process has jumps and a stochastic long‐term mean. We calibrate the model parameters using the VIX term structure data and show that our model provides the theoretical link between the VIX, VIX futures, and the VXX. Our model can be used for pricing VIX futures, the VXX and other short‐term VIX futures exchange‐traded products (ETPs). Our model could be extended to price options on the VXX and other short‐term VIX futures ETPs.

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Section: Introductionmentioning

confidence: 99%

Modeling VXX under jump diffusion with stochastic long‐term mean

Gehricke

Zhang

2020

Journal of Futures Markets

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“…In the literature it has been suggested by several articles that the predominantly contango term structure of VIX futures prices is the cause for the VXX's underperformance (Alexander & Korovilas, ; Liu & Dash, ; Whaley, ). The roll yield is the return that a futures investor captures when their futures contract converges to the spot price as it matures and is not due to changes in the spot price .…”

Section: Introductionmentioning

confidence: 99%

Modeling VXX

Gehricke

Zhang

2018

Journal of Futures Markets

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In this paper, we study the VXX Exchange Traded Note (ETN), that has been actively traded in recent years, but has lost 99.84% of its value. Using Zhang's formula for VIX futures prices, we develop the first theoretical model for the VXX that links the SPX, VIX, and VXX. We show that the roll yield of VIX futures drives the difference between the VXX and VIX returns. The roll yield is a mostly negative process. We then provide a simple yet robust estimation of the market price of variance risk using VXX and VIX futures prices. The model can be used to price VXX options.

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“…They argue that, in spite of the large daily volatility in the VIX, the high negative correlation between the VIX and the S&P 500 creates an opportunity to combine stocks with a volatility asset that significantly reduces portfolio risk compared to the S&P 500 portfolio. Liu and Dash (2012) show that volatility ETNs have a similar negative correlation profile with the equity markets. In addition, ETNs exhibit the same directional hedge and portfolio diversification properties as does the spot VIX.…”

Section: Introductionmentioning

confidence: 74%

VIX Futures ETNs: Three Dimensional Losers

Hancock

2013

AFR

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This research tests the performance of volatility Exchange Traded Notes (ETN) and Funds and compares the results to three benchmarks to determine whether the risk-adjusted returns are sufficient to compensate for the high risk and high expenses. Two tests are composed along three dimensions to establish the magnitude and frequency with which the volatility funds outperform the benchmarks. The first dimension tests the robustness of the fund performance to the construction of the portfolio. The results provide evidence that the strong negative correlation between the S&P 500 and ETN returns is not sufficient to consistently produce risk-adjusted returns greater than the benchmarks. The second dimension tests the sensitivity of the results to one-day, one-week and one-month holding periods. The findings indicate that changes in the holding period alter the identity of the successful portfolios but the number of successful funds remains low regardless of the holding period. Finally, the third dimension employs two different weighting methods to the construction of the portfolios. Once again, the findings show that the number of successful portfolios produced by either weighting method is low and unimpressive relative to the benchmarks. Overall, the evidence suggests that the poor performance is unique to volatility ETNs rather than to volatility in general.

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Volatility ETFs and ETNs

Cited by 15 publications

References 3 publications

Modeling VXX under jump diffusion with stochastic long‐term mean

Modeling VXX under jump diffusion with stochastic long‐term mean

Modeling VXX

VIX Futures ETNs: Three Dimensional Losers

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