Volatility Components : The Term Structure Dynamics of VIX Futures

In this paper we empirically study the variance term structure using VIX futures market. We first derive a new pricing framework for VIX futures that is convenient to study variance term structure dynamics. We construct five models and use Kalman filter and Maximum Likelihood method for model estimations and comparisons. We provide evidence that a third factor is statistically significant for variance term structure dynamics. We find that our parameter estimates are robust and helpful to shed light on economic significance of variance factor model