A0316
Title: On the right jump tail inferred from the VIX markets
Authors: Xingzhi Yao - Xi\'an Jiaotong Liverpool University (China) [presenting]
Zhenxiong Li - Soochow University (China)
Marwan Izzeldin - Lancaster University Management School (United Kingdom)
Abstract: Using the VIX futures and options data from 2006 through 2020, it is shown that the right jump tail implied by the VIX out-of-the-money call options is a significant risk factor that affects VIX option returns, beyond the volatility of volatility (VOV) and implied skewness as documented in the recent literature as relevant predictors. A comprehensive simulation study reveals the non-trivial effects on the dynamics and term structure of VOV, implied skewness and variance-of-variance risk premium of upward jumps in the VIX. In addition, strong evidence is delivered in support of the hypothesis that the right jump tail is the key driver of the VOV and implied skewness and fully subsumes the information contained in the left jump tail.
