Modelling VIX Futures for risk management

I would like to model VIX futures. The aim is not pricing but risk management. Thus I want to get risk measures like volatility right and be able to accurately calculate correlations when the VIX futures is analyzed in portfolio context.

I am not sure whether the Heston approach that is sometimes used is suitable for this aim. Another approach would be to approximate the VIX futures by the historical returns of the VIX index.

What is the approach most useful in risk management? Do you know any useful software implementation for VIX (e.g. in R)?

• I have only seen VIX-Futures modelled like equity index futures in commercial risk models. This is certainly wrong as it neglects the term strucutre of implied varianze/volatility. Have you ever seen a commercial model doing something better? Sep 18, 2012 at 9:11
• Did you work out a model on VIX futures? I am working on a similar problem. How can I contact you to ask a few questions? For example, how do you use historic VIX index to approximate VIX future price? Thanks.
– user4775
Feb 12, 2013 at 6:35
• Hi ITGuy ... you have made a comment out of your answer and by that deleted my comment. I repeat: Bloomberg e.g. offers time series representing so called generic futures. This is UX1 for the VIX futures with approx. 1 month time to maturity, UX2 for 2 months and so on. Thus these time series represent the history of a constant maturity futures. When I need to model a traded VIX-futures, then I map it to the generic ones (this mapping changes as the futures approaches maturity) and use the returns of the generic futures in the historical simulation. Feb 12, 2013 at 12:44
• are you sure that UX1 is a 1 month constant maturity? At least on my bloomberg settings it simply points to the "next" future, and therefore it jumps to the next contract on expiration date. Therefore it is not quite a constant maturity instrument. Mar 4, 2019 at 16:13
• @mbison this is what I mean by "approx." 1 month ... in the sense that you describe. It points to the first which has a maturity between something like 0 and 1 month ... right? only in this sense. Mar 4, 2019 at 20:32

• Thanks for your answer. What I meant with equity index futures was the cost of carry pricing. This is certainly wrong for VIX futures. The reason is that $VIX^2$ is a portfolio of options but $VIX$ ist the square root of that portfolio. So the pricing logic of equity index futures does not apply. Sep 19, 2012 at 7:22