| A Calendar Spread is a portfolio consisting of long position in one futures contracts and a short position in another futures contract of the same underlying asset and different expiration date.
The spread is defined as the differences of log prices of the 2 legs to generate trading siganls assuming the market value of the 2 legs is the same every period. Only the roll returns are considered not the total return of the future.
ADF test is run for 12-month log calendar spread of back / front VIX Future VL and stationary is confirmed with 99% probability and half-life of 36 days.
A linear mean reversion profitable strategy is formed based on the roll returns for back / front VIX futures (VX futures). |