Term spreads of implied volatility smirk and variance risk premium-Reference-Cited by-同舟云学术

Term spreads of implied volatility smirk and variance risk premium

Published:2023-05-08 Issue:7 Volume:43 Page:829-857
ISSN:0270-7314
Container-title:Journal of Futures Markets
language:en
Short-container-title:Journal of Futures Markets

Author:

Guo Wei¹^ORCID,Ruan Xinfeng²³^ORCID,Gehricke Sebastian A.³^ORCID,Zhang Jin E.³^ORCID

Affiliation:

1. Department of Finance, Business School University of Shanghai for Science and Technology Shanghai China

2. Department of Finance, International Business School Suzhou Xi'an Jiaotong‐Liverpool University Suzhou China

3. Department of Accountancy and Finance, Otago Business School University of Otago Dunedin New Zealand

Abstract

AbstractIn this paper, we study the pattern of S&P 500 index options implied volatility (IV) curves and their predictive ability for the variance risk premium (VRP). We explore this predictability employing by the Zhang and Xiang IV factor estimation. We show that the level factor term spread significantly predicts the VRP, proxied by straddle returns and variance swap returns, in both in‐sample and out‐of‐sample tests. The predictability is more pronounced for straddle returns rather than variance swap returns.

Publisher

Wiley

Subject

Economics and Econometrics,Finance,General Business, Management and Accounting,Accounting

Link

https://onlinelibrary.wiley.com/doi/pdf/10.1002/fut.22409

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