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 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 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 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 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 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 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 Variance Trading and Market Price of Variance Risk written by Oleg Bondarenko and published by . This book was released on 2014 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a new approach for variance trading. We show that the discretely-sampled realized variance can be robustly replicated under very general conditions, including when the price can jump. The replication strategy specifies the exact timing for rebalancing in the underlying. The deviations from the optimal schedule can lead to surprisingly large hedging errors. In the empirical application, we synthesize the prices of the variance contract on S&P 500 index over the period from 01/1990 to 12/2009. We find that the market variance risk is priced, its risk premium is negative and economically very large. The variance risk premium cannot be explained by the known risk factors and option returns.
Download or read book Variance Risk Premia written by Martino Lupo Pusterla and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Variance Risk Premium and Fundamental Uncertainty written by Christian Conrad 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 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 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 Bond Variance Risk Premiums written by Hoyong Choi and published by . This book was released on 2016 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies variance risk premiums in the Treasury market. We first develop a theory to price variance swaps and show that the realized variance can be perfectly replicated by a static position in Treasury futures options and a dynamic position in the underlying. Pricing and hedging is robust even if the underlying jumps. Using a large options panel data set on Treasury futures with different tenors, we report the following findings: First, the term structure of implied variances is downward sloping across maturities and increases in tenors. Moreover, the slope of the term structure is strongly linked to economic activity. Second, returns to the Treasury variance swap are negative and economically large. Shorting a variance swap produces an annualized Sharpe ratio of almost two and the associated returns cannot be explained by standard risk factors. Finally, the returns remain highly statistically significant even when accounting for transaction costs and margin requirements.
Download or read book Volatility of Volatility Expected Stock Return and Variance Risk Premium written by Ruoyang Wang and published by . This book was released on 2015 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Theory suggests a relationship between both volatility of volatility, variance risk premium, and the equity risk premium. We empirically investigate the relationship between volatility of volatility and the equity risk premium, and the relationship between the variance risk premium and the equity risk premium. We find that volatility of volatility alone explains 5 to 10% of the total variation of equity risk premium, and together with VIX data, it explains more than 20% of the total variation of equity premium. We fail to find a significant relationship between volatility of volatility and the variance risk premium.We use six measures of volatility of volatility based on non-parametric models, a GARCH model and VVIX data.
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.
