Statistics of vix futures and applications to trading volatility exchange-traded products

M. Avellaneda, A. Papanicolaou

Research output: Contribution to journalArticlepeer-review


We study the dynamics of VIX futures and ETNs/ETFs. We find that contrary to classical commodities, VIX and VIX futures exhibit large volatility and skewness, consistent with the absence of cash-and-carry arbitrage. The constant-maturity futures (CMF) term-structure can be modeled as a stationary stochastic process in which the most likely state is contango with VIX ≈ 12% and a long-term futures price V∞≈ 20%. We analyze the behavior of ETFs and ETNs based on constant-maturity rolling futures strategies, such as VXX, XIV and VXZ, assuming stationarity and through a multi-factor model calibrated to historical data. We find that buy-and-hold strategies consisting of shorting ETNs that roll long futures, or buying ETNs that roll short futures, will produce theoretically-sure profits if it is assumed that CMFs are stationary and ergodic. To quantify further, we estimate a 2-factor lognormal model with mean-reverting factors to VIX and CMF historical data from 2011 to 2016. The results confirm the profitability of buy-and-hold strategies, but also indicate that the latter have modest Sharpe ratios, of the order of SR = 0.5 or less, and high variability over 1-year horizon simulations. This is due to the surges in VIX and CMF backwardations which are observed sporadically in the volatility futures market.

Original languageEnglish (US)
Article number1850061
JournalInternational Journal of Theoretical and Applied Finance
Issue number1
StatePublished - Feb 1 2019


  • VIX futures
  • contango
  • volatility ETNs

ASJC Scopus subject areas

  • Finance
  • Economics, Econometrics and Finance(all)


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