Estimating Synthetic Third- and Fourth-Month VIX Futures

Summary

This indicator estimates continuous third- and fourth-month VIX futures series from VIX spot and the first two continuous VX futures. It is intended to fill a historical data gap for charting and backtesting maturities beyond the front two contracts. The primary method fits an exponential curve that reverts toward a long-run level, deriving the curve parameters from the available spot and futures observations and projecting them to later maturities.

When the exponential fit fails validity checks, the script falls back to a linear-variance extrapolation from the first two futures. It filters implausible values, allows forward-filling input series, and displays which estimation method is active. The author states that estimates may be off by roughly 5%, with potentially lower accuracy during backwardation. These are modeled series rather than traded contracts, so results depend on input symbols, data availability, roll behavior, and model assumptions; the document provides no systematic validation or backtest comparison.

Key ideas

• The indicator estimates later VX maturities using VIX spot and the first two continuous futures series.
• Its main model fits exponential reversion toward a long-run volatility level.
• A linear-variance extrapolation supplies estimates when the exponential fit is invalid.
• Range checks and a status flag help identify plausible outputs and the method used.
• The estimates are approximate and may be less accurate during backwardation.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.