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Type | Journal Article |
Scope | Discipline-based scholarship |
Title | Inferring volatility dynamics and risk premia from the S&P 500 and VIX markets |
Organization Unit | |
Authors |
|
Item Subtype | Original Work |
Refereed | Yes |
Status | Published in final form |
Language |
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Journal Title | Journal of Financial Economics |
Publisher | Elsevier |
Geographical Reach | international |
ISSN | 0304-405X |
Volume | 131 |
Number | 3 |
Page Range | 593 - 618 |
Date | 2019 |
Abstract Text | We estimate a flexible affine model using an unbalanced panel containing S\&P 500 and VIX index returns and option prices, and analyze the contribution of VIX options to the model's in- and out-of-sample performance. We find that they contain valuable information on the risk-neutral conditional distributions of volatility at different time horizons, which is not spanned by the S\&P 500 market. This information allows enhanced estimation of the variance risk premium. We gain new insights on the term structure of the variance risk premium, present a trading strategy exploiting these insights and show how to improve S&P 500 return forecasts. |
Related URLs | |
Digital Object Identifier | 10.1016/j.jfineco.2018.09.008 |
Other Identification Number | merlin-id:15909 |
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