Download or read book Characterizing the Variance Risk Premium written by Guanglian Hu and published by . This book was released on 2019 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: A substantial portion of the variation in the market variance risk premium can be explained by the conditional covariance between the market return and its variance, which we refer to as the leverage effect. This finding holds at different data frequencies and for various sample periods, and it is robust to controlling for other variables used to characterize the variance risk premium. We consider dynamic equilibrium models in which the variance risk premium and the leverage effect arise endogenously, and show that the pricing of volatility risk is the economic channel behind the strong positive relation between the two variables.
Download or read book Variance Risk Premiums and the Forward Premium Puzzle written by Juan M. Londono and published by . This book was released on 2016 with total page 67 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide new empirical evidence that world currency and U.S. stock variance risk premiums have nonredundant and significant predictive power for the appreciation rates of twenty-two currencies with respect to the U.S. dollar, especially at the four-month and one-month horizons, respectively. The heterogeneous exposures of currencies to the currency variance risk premium are systematically rising along the line of inflation risk. We rationalize these findings in a consumption-based asset pricing model, with local consumption uncertainty and global inflation uncertainty characterized, respectively, by the stock and currency variance risk premiums.
Download or read book The Variance Risk Premium written by Junye Li and published by . This book was released on 2016 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the properties of the variance risk premium (VRP). We propose a flexible asset pricing model that captures co-jumps in prices and volatility, and self-exciting jump clustering. We estimate the model on equity returns and variance swap rates at different horizons. The total VRP is negative and has a downward-sloping term structure, while its jump component displays an upward-sloping term structure. The abrupt and persistent response of the short-term jump VRP to extreme events makes this specific premium a proxy for investors' fear of a market crash. Furthermore, the use of the VRP level and slope, and of its components, helps improve the short-run predictability of equity excess returns.
Download or read book Equity Variance Risk Premium on FX written by Chung Ma and published by . This book was released on 2013 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Variance Risk Premium in Equilibrium Models written by Geert Bekaert and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The equity variance risk premium is the expected compensation earned for selling variance risk in equity markets. The variance risk premium is positive and shows moderate persistence. High variance risk premiums coincide with the left tail of the consumption growth distribution shifting down. These facts, together with a positive, yet moderate, difference between the risk-neutral entropy and variance of the aggregate market return, refute the bulk of the extant consumption-based asset pricing models. We introduce a tractable habit model that does fit the data. In the model, the variance risk premium depends positively (negatively) on "bad" ("good") consumption growth uncertainty.
Download or read book Downside Variance Risk Premium written by Federal Reserve Board and published by CreateSpace. This book was released on 2015-04-10 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: Our results are supported by a simple equilibrium consumption-based asset pricing model.
Download or read book The Variance Risk Premium Around the World written by Juan M. Londono and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Essays on Volatility and Variance Risk Premium written by Xiaoman Su and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Variance Risk Premium Demystified written by Grigory Vilkov and published by . This book was released on 2008 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the dynamics and cross-sectional properties of the variance risk premia embedded in options on stocks and indices, approximated by the synthetic variance swap returns. Several important stylized facts and contributions arise. First, variance risk premia for indices are systematically larger (more negative) than for individual securities. Second, there are systematic cross-sectional differences in the price of variance in individual stocks. Linking variance swaps to firm size/book-to-market, and stock turnover characteristics, an investor gains access to several lucrative long-short strategies with Sharpe Ratios around 2.85. Third, principal component analysis reveals at most one important factor driving both stock and variance swap returns, which corresponds to the traditional market factor. For the remainder of the dynamics, the stock and its variance processes are nearly linearly independent. Fourth, we find the leverage effect through analysis of the relationship between the variance risk premium and stock to variance correlation. The systematic (market factor) part of the leverage effect provides additional evidence of the existence of one factor common to both variance swaps and stocks, but the contribution of the market risk premium to the total variance premium is very small. These findings stress the importance of using variance-based instruments in the portfolio of an investor.
Download or read book Downside Variance Risk Premium written by Bruno Feunou and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Variance Risk Premium and Capital Structure written by and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates how the asset-return variance risk premium changes leverage. I find that the premium lowers leverage by increasing risk-neutral bankruptcy probability and costs in a model where asset returns have stochastic variance with risk premium. Empirically, the model calibrations verify significant reduction in optimal leverage, closer to observed leverage than the model without the premium. In model-free regressions, I also document negative correlation between leverage and the variance premium. The most negative correlation is among investment-grade firms with low asset beta and historical variance but high variance premium because their assets have high exposure to market variance premium.
Download or read book Variance Risk Premiums in Currency Options written by and published by . This book was released on 2009 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Variance Risk Premium Components and International Stock Return Predictability written by Juan M. Londono and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Variance Risk Premiums written by Peter Carr and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a direct and robust method for quantifying the variance risk premium on financial assets. We show that the risk-neutral expected value of return variance, also known as the variance swap rate, is well approximated by the value of a particular portfolio of options. We propose to use the difference between the realized variance and this synthetic variance swap rate to quantify the variance risk premium. Using a large options data set, we synthesize variance swap rates and investigate the historical behavior of variance risk premiums on five stock indexes and 35 individual stocks.
Download or read book Global Variance Risk Premium written by Katja Novak and published by . This book was released on 2017 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Variance Risk Premia and Capital Structure written by Babak Lotfaliei and published by . This book was released on 2018 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper shows that the optimal leverage decreases with asset volatility risk in a trade-off framework. Thus, the paper relates the asset volatility risk premium to the underleverage puzzle. In models without volatility risk, the paper empirically documents that underleverage increases with the assets' volatility risk premium. In particular, the underleverage is most important for investment-grade firms with low historical volatility and high volatility risk premium. With volatility risk, two models in standard trade-off settings show that a higher premium implies lower leverage. Empirically, the models' calibration leaves no significant underleverage patterns in the cross-section of the firms. Hence, high asset volatility risk premia contributes to the apparent underleverage in the firms with relatively low historical asset volatility.
Download or read book Term Structure of Variance Risk Premium and Returns Predictability written by Giacomo Bormetti and published by . This book was released on 2016 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We derive an analytic relation between equity risk premium and the term structure of variance risk premium (VRP). Motivated by this result, we estimate the VRP term structure using a general and fully analytical discrete-time option pricing framework featuring multiple volatility components and multiple risk premia. We confirm the importance of VRP in improving option pricing performances and show the ability of multi-component GARCH models to produce realistic hump-shaped VRP term structure. We finally uncover the strong predictive power of the shape of the VRP term structure, summarized by its slope, on future stock-index returns.
