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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 | |
| Authors |
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| 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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