Dynamic Estimation Of Volatility Risk Premia And Investor Risk Aversion From Option Implied And Realized Volatilities PDF Download
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Author | : Tim Bollerslev |
Publisher | : |
Total Pages | : 60 |
Release | : 2004 |
Genre | : |
ISBN | : |
Download Dynamic Estimation of Volatility Risk Premia and Investor Risk Aversion from Option-implied and Realized Volatilities Book in PDF, ePub and Kindle
"This paper proposes a method for constructing a volatility risk premium, or investor risk aversion, index. The method is intuitive and simple to implement, relying on the sample moments of the recently popularized model-free realized and option-implied volatility measures. A small-scale Monte Carlo experiment suggests that the procedure works well in practice. Implementing the procedure with actual S&P 500 option-implied volatilities and high-frequency five-minute-based realized volatilities results in significant temporal dependencies in the estimated stochastic volatility risk premium, which we in turn relate to a set of underlying macro-finance state variables. We also find that the extracted volatility risk premium helps predict future stock market returns"--Abstract.
Author | : Tim Bollerslev |
Publisher | : |
Total Pages | : 48 |
Release | : 2009 |
Genre | : |
ISBN | : |
Download Dynamic Estimation of Volatility Risk Premia and Investor Risk Aversion from Option-Implied and Realized Volatilities Book in PDF, ePub and Kindle
This paper proposes a method for constructing a volatility risk premium, or investor risk aversion, index. The method is intuitive and simple to implement, relying on the sample moments of the recently popularized model-free realized and option-implied volatility measures. A small-scale Monte Carlo experiment confirms that the procedure works well in practice. Implementing the procedure with actual Samp;P 500 option-implied volatilities and high-frequency five-minute-based realized volatilities indicates significant temporal dependencies in the estimated stochastic volatility risk premium, which we in turn relate to a set of macro-finance state variables. We also find that the extracted volatility risk premium helps predict future stock market returns.
Author | : Mikhail Chernov |
Publisher | : |
Total Pages | : 32 |
Release | : 2002 |
Genre | : |
ISBN | : |
Download Implied Volatilities as Forecasts of Future Volatility, Time-Varying Risk Premia, and Returns Variability Book in PDF, ePub and Kindle
The unbiasedness tests of implied volatility as a forecast of future realized volatility have found implied volatility to be a biased predictor. We explain this puzzle by recognizing that option prices contain a market risk premium not only on the asset itself, but also on its volatility. Hull and White (1987) show using a stochastic volatility model that a call option price can be represented as an expected value of the Black-Scholes formula evaluated at the average integrated volatility. If we allow volatility risk to be priced, this expectation should be taken under the risk-neutral probability measure, and can be decomposed into the expectation with respect to the physical measure and the risk-premium term. This term is just a linear function of the unobservable spot volatility. The decomposition explains the bias documented in the empirical literature and shows that the realized and historical volatility, which are used in the tests, are in fact the estimates of the unobserved quadratic variation and spot volatility of the stock-return generating process. Therefore, the use of these estimates generates the error-in-the-variables problem. We generalize the above results from a stochastic volatility model to a model with multiple volatility and jump factors. We provide an empirical illustration based on two US equity indices and three foreign currency rates. We find, that when we take into an account the risk-premium and use efficient methods to estimate volatility, the unbiasedness hypothesis can not be rejected, and the point estimate of the loading on the implied volatility in the traditional regression is equal to 1.
Author | : Ryszard Kokoszczynski |
Publisher | : Peter Lang Gmbh, Internationaler Verlag Der Wissenschaften |
Total Pages | : 0 |
Release | : 2015 |
Genre | : Derivative securities |
ISBN | : 9783631655764 |
Download Volatility as an Asset Class Book in PDF, ePub and Kindle
Volatility derivatives are today an important group of financial instruments. This book presents an overview of their major classes and their possible applications in investment strategies and portfolio optimization. Volatility is not constant so the book presents its term structure and its potential use in forecasting volatility.
Author | : Robert A. Jarrow |
Publisher | : |
Total Pages | : 472 |
Release | : 1998 |
Genre | : Derivative securities |
ISBN | : |
Download Volatility Book in PDF, ePub and Kindle
Written by a number of authors, this text is aimed at market practitioners and applies the latest stochastic volatility research findings to the analysis of stock prices. It includes commentary and analysis based on real-life situations.
Author | : Jared Woodard |
Publisher | : Pearson Education |
Total Pages | : 49 |
Release | : 2011-02-17 |
Genre | : Business & Economics |
ISBN | : 0132756129 |
Download Options and the Volatility Risk Premium Book in PDF, ePub and Kindle
Master the new edge in options trades: the hidden volatility risk premium that exists in options for every major asset class. One of the most exciting areas of recent financial research has been the study of how the volatility implied by option prices relates to the volatility exhibited by their underlying assets. Here, I’ll explain the concept of the volatility risk premium, present evidence for its presence in options on every major asset class, and show how to estimate, predict, and trade on it....
Author | : Leonidas Rompolis |
Publisher | : |
Total Pages | : 34 |
Release | : 2009 |
Genre | : |
ISBN | : |
Download Risk Premium Effects on Implied Volatility Regressions Book in PDF, ePub and Kindle
This paper provides new insights into the sources of bias of option implied volatility to forecast its physical counterpart. It argues that this bias can be attributed to volatility risk premium effects. The latter are found to depend on high order cumulants of the risk neutral density. These cumulants capture the risk averse behavior of investors in the stock and option markets for bearing the investment risk which is reflected in the deviations of the implied risk neutral distribution from the normal distribution. The paper shows that the bias of the implied volatility to forecast its corresponding physical measure can be eliminated when the implied volatility regressions are adjusted for the risk premium effects. The latter are captured mainly by the third order risk neutral cumulant. The paper also shows that a substantial reduction of higher order risk neutral cumulants biases to predict their corresponding physical ones is supported when adjustments for risk premium effects are made.
Author | : Tim Bollerslev |
Publisher | : |
Total Pages | : 48 |
Release | : 2003 |
Genre | : Stocks |
ISBN | : |
Download Volatility Puzzles Book in PDF, ePub and Kindle
Author | : Maria Elvira Mancino |
Publisher | : Springer |
Total Pages | : 139 |
Release | : 2017-03-01 |
Genre | : Mathematics |
ISBN | : 3319509691 |
Download Fourier-Malliavin Volatility Estimation Book in PDF, ePub and Kindle
This volume is a user-friendly presentation of the main theoretical properties of the Fourier-Malliavin volatility estimation, allowing the readers to experience the potential of the approach and its application in various financial settings. Readers are given examples and instruments to implement this methodology in various financial settings and applications of real-life data. A detailed bibliographic reference is included to permit an in-depth study.
Author | : Yun Feng |
Publisher | : |
Total Pages | : |
Release | : 2009 |
Genre | : |
ISBN | : |
Download Down-Side Risk and the Puzzle of Implied Volatility Premium Book in PDF, ePub and Kindle
Volatilities implied in options significantly stray upward from realized volatilities. Trading prices in markets are higher than theoretical prices calculated by the BS model. This paper aims to explain the implied volatility premium from the perspective of investors' loss-aversion. In practice investors pay more attention to potential losses rather than volatility of payoffs. Semi-variance is therefore used as a more plausible measure to reflect down-side risk. Due to the asymmetric payoffs of options, down side risk exposure varies between a buyer and a seller, which can not be captured in those pricing models using variance as risk measure. This paper shows that semi-variance of a short option position is higher than that of a long option position when option prices are determined by the BS model. Therefore the seller of an option asks for a higher trading price for enduring more down-side risk. That is why we observe upward deviation of market option prices away from theoretical prices, and the higher implied volatilities than realized volatilities on average. The empirical studies show the strong statistically positive correlation between deviation of market prices and the excess down-side risk exposure taken by a seller.