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Contribution Details

Type Journal Article
Scope Discipline-based scholarship
Title Inferring volatility dynamics and risk premia from the S&P 500 and VIX markets
Organization Unit
  • Markus Leippold
  • Chris Bardgett
  • Elise Gourier
Item Subtype Original Work
Refereed Yes
Status Published electronically before print/final form (Epub ahead of print)
  • English
Journal Title Journal of Financial Economics
Geographical Reach international
Volume forthcoming
Page Range -
Date 2018
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.
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