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Jump And Volatility Risk And Risk Premia
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Book Synopsis Jump and Volatility Risk and Risk Premia by : Pedro Santa-Clara
Download or read book Jump and Volatility Risk and Risk Premia written by Pedro Santa-Clara and published by . This book was released on 2004 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use a novel pricing model to filter times series of diffusive volatility and jump intensity from S&P 500 index options. These two measures capture the ex-ante risk assessed by investors. We find that both components of risk vary substantially over time, are quite persistent, and correlate with each other and with the stock index. Using a simple general equilibrium model with a representative investor, we translate the filtered measures of ex-ante risk into an ex-ante risk premium. We find that the average premium that compensates the investor for the risks implicit in option prices, 10.1 percent, is about twice the premium required to compensate the same investor for the realized volatility, 5.8 percent. Moreover, the ex-ante equity premium that we uncover is highly volatile, with values between 2 and 32 percent. The component of the premium that corresponds to the jump risk varies between 0 and 12 percent.
Book Synopsis Volatility and Jump Risk Premia in Emerging Market Bonds by : John Matovu
Download or read book Volatility and Jump Risk Premia in Emerging Market Bonds written by John Matovu and published by International Monetary Fund. This book was released on 2007-07 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: There is strong evidence that interest rates and bond yield movements exhibit both stochastic volatility and unanticipated jumps. The presence of frequent jumps makes it natural to ask whether there is a premium for jump risk embedded in observed bond yields. This paper identifies a class of jump-diffusion models that are successful in approximating the term structure of interest rates of emerging markets. The parameters of the term structure of interest rates are reconciled with the associated bond yields by estimating the volatility and jump risk premia in highly volatile markets. Using the simulated method of moments (SMM), results suggest that all variants of models which do not take into account stochastic volatility and unanticipated jumps cannot generate the non-normalities consistent with the observed interest rates. Jumps occur (8,10) times a year in Argentina and Brazil, respectively. The size and variance of these jumps is also of statistical significance.
Book Synopsis Model Specification and Risk Premia by : Mark Broadie
Download or read book Model Specification and Risk Premia written by Mark Broadie and published by . This book was released on 2011 with total page 71 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines specification issues and estimates volatility and jump risk premia using the information in the cross-section of Samp;P futures options from 1987 to 2003. We first test for the presence of jumps in volatility by analyzing the higher moment behavior of option implied variance, and we find strong evidence supporting their presence. Based on cross-sectional fit, we find strong evidence for jumps in prices, and modest evidence for jumps in volatility. Regarding the factor risk premiums, we are not able to identify a statistically significant volatility risk premium, but are able to identify statistically significant, although modest jump risk premiums. The jump risk premiums are economically meaningful as they contribute a significant component to the equity risk premium and can explain observed put returns.
Book Synopsis Bond Risk Premia and Realized Jump Volatility by : Jonathan H. Wright
Download or read book Bond Risk Premia and Realized Jump Volatility written by Jonathan H. Wright and published by . This book was released on 2007 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Options and the Volatility Risk Premium by : Jared Woodard
Download or read book Options and the Volatility Risk Premium written by Jared Woodard and published by Pearson Education. This book was released on 2011-02-17 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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....
Book Synopsis Jump and Variance Risk Premia in the S&P 500 by : Maximilian Neumann
Download or read book Jump and Variance Risk Premia in the S&P 500 written by Maximilian Neumann and published by . This book was released on 2019 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the risk premia embedded in the S&P 500 spot index and option markets. We use a long time-series of spot prices and a large panel of option prices to jointly estimate the diffusive stock risk premium, the Price jump risk premium, the diffusive variance risk premium and the variance jump risk premium. The risk premia are statistically and economically significant and move over time. Investigating the economic drivers of the risk premia, we are able to explain up to 63% of these variations.
Book Synopsis Expected Option Returns and the Structure of Jump Risk Premia by : Nicole Branger
Download or read book Expected Option Returns and the Structure of Jump Risk Premia written by Nicole Branger and published by . This book was released on 2009 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper analyzes expected option returns in models with stochastic volatility and jumps. A comparison with empirically documented returns shows that the ability of the model to explain these returns can differ significantly depending on the holding period and depending on whether we consider call or put options. Furthermore, we show that the size of the jump risk premium and its decomposition into a premium for jump intensity risk, jump size risk, and jump variance risk has a significant impact on expected option returns. In particular, expected returns on OTM calls can even become negative if e.g. jump variance risk is priced.
Book Synopsis Volatility Risk Premia in the G9 Currencies by : Athanasios Bolmatis
Download or read book Volatility Risk Premia in the G9 Currencies written by Athanasios Bolmatis and published by . This book was released on 2016 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the volatility risk premia for the G9 currencies and find that they are negative, significant, both statistically and economically, and time varying. Our analysis indicates that the currency volatility risk premia covary with other prominent risk premia that have attracted attention in the asset pricing literature, namely the FX carry and the equity risk premium as well as the variance risk premia in other asset classes. However, once the equity variance risk premium is entered in a multiple regression, the statistical and economic significance of the former two is substantially impaired. We interpret these findings as evidence that volatility acts as an aggregate state variable that captures the evolution of the investor's opportunity set rather than just another statistical risk factor. Finally, we find no conclusive evidence that jump risk is priced within the volatility risk premia supporting the view that stochastic volatility and jumps have different effects and are separately priced.
Book Synopsis Jump Risk Premia Across Major International Equity Markets by : Mohamed El Hedi Arouri
Download or read book Jump Risk Premia Across Major International Equity Markets written by Mohamed El Hedi Arouri and published by . This book was released on 2019 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We decompose the non-diversifiable market risk into continuous and discontinuous components and jump systematic risks into positive vs. negative and small vs. large components. We examine their association with equity risk premia across major equity markets. We show that developed markets jumps are more closely linked to the aggregate market index than emerging and frontier ones. The reward for bearing both the continuous and downside jump risks is positive during the pre-crisis period whereas the reward for bearing the upside and large jump risks is negative during the crisis and post-crisis periods. We also provide evidence of significant continuous and discontinuous leverage effects during the pre-crisis period, suggesting that both continuous and discontinuous price and volatility risks share compensations for common underlying risk factors.
Book Synopsis Jump and Volatility Risk Premiums Implied by VIX. by : Jin-Chuan Duan
Download or read book Jump and Volatility Risk Premiums Implied by VIX. written by Jin-Chuan Duan and published by . This book was released on 2011 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: An estimation method is developed for extracting the latent stochastic volatility from VIX, a volatility index for the Samp;P 500 index return produced by the Chicago Board Options Exchange (CBOE) using the so-called model-free volatility construction. Our model specification encompasses all mean-reverting stochastic volatility option pricing models with a constant-elasticity of variance and those allowing for price jumps under stochastic volatility. Our approach is made possible by linking the latent volatility to the VIX index via a new theoretical relationship under the risk-neutral measure. Because option prices are not directly used in estimation, we can avoid the computational burden associated with option valuation for stochastic volatility/jump option pricing models. Our empirical findings are: (1) incorporating a jump risk factor is critically important; (2) the jump and volatility risks are priced; and (3) the popular square-root stochastic volatility process is a poor model specification irrespective of allowing for price jumps or not.
Book Synopsis General Equilibrium Option Pricing Method: Theoretical and Empirical Study by : Jian Chen
Download or read book General Equilibrium Option Pricing Method: Theoretical and Empirical Study written by Jian Chen and published by Springer. This book was released on 2018-04-10 with total page 163 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book mainly addresses the general equilibrium asset pricing method in two aspects: option pricing and variance risk premium. First, volatility smile and smirk is the famous puzzle in option pricing. Different from no arbitrage method, this book applies the general equilibrium approach in explaining the puzzle. In the presence of jump, investors impose more weights on the jump risk than the volatility risk, and as a result, investors require more jump risk premium which generates a pronounced volatility smirk. Second, based on the general equilibrium framework, this book proposes variance risk premium and empirically tests its predictive power for international stock market returns.
Book Synopsis Jump and Volatility Risk and Risk Primea by : Pedro Santa-Clara
Download or read book Jump and Volatility Risk and Risk Primea written by Pedro Santa-Clara and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Credit Risk Modeling by : David Lando
Download or read book Credit Risk Modeling written by David Lando and published by Princeton University Press. This book was released on 2009-12-13 with total page 328 pages. Available in PDF, EPUB and Kindle. Book excerpt: Credit risk is today one of the most intensely studied topics in quantitative finance. This book provides an introduction and overview for readers who seek an up-to-date reference to the central problems of the field and to the tools currently used to analyze them. The book is aimed at researchers and students in finance, at quantitative analysts in banks and other financial institutions, and at regulators interested in the modeling aspects of credit risk. David Lando considers the two broad approaches to credit risk analysis: that based on classical option pricing models on the one hand, and on a direct modeling of the default probability of issuers on the other. He offers insights that can be drawn from each approach and demonstrates that the distinction between the two approaches is not at all clear-cut. The book strikes a fruitful balance between quickly presenting the basic ideas of the models and offering enough detail so readers can derive and implement the models themselves. The discussion of the models and their limitations and five technical appendixes help readers expand and generalize the models themselves or to understand existing generalizations. The book emphasizes models for pricing as well as statistical techniques for estimating their parameters. Applications include rating-based modeling, modeling of dependent defaults, swap- and corporate-yield curve dynamics, credit default swaps, and collateralized debt obligations.
Book Synopsis Jump-Diffusion Long-Run Risks Models, Variance Risk Premium, and Volatility Dynamics by : Jianjian Jin
Download or read book Jump-Diffusion Long-Run Risks Models, Variance Risk Premium, and Volatility Dynamics written by Jianjian Jin and published by . This book was released on 2018 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper calibrates a class of jump-diffusion long-run risks models and quantifies how well they can account for both equity and variance risk premiums while generating realistic volatility dynamics. I find that jumps in the level and the volatility of long-run consumption growth rates perform equally well in explaining the variance risk premium. Moreover, compared to jump-in-growth models, jump-in-volatility models generate more realistic volatility dynamics and stronger predictability of returns by the variance risk premium. Finally, both jump-in-volatility and jump-in-growth models suggest that a non-trivial portion of the equity risk premium is due to compensation for jump risks.
Book Synopsis Volatility-Decay Risk Premia by : Dan Galai
Download or read book Volatility-Decay Risk Premia written by Dan Galai and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate post-jump volatility-decay risk premia as the predictable difference between periods of high and low diffusive volatility. By constructing straddle portfolios after positive and negative jumps occur, we show that the gains that these hedged options' portfolios yield compensate investors for the uncertain magnitude and duration of volatility decay, as well as for vega exposure. This paper adds to the literature by distinguishing between the premia after positive versus negative jumps, and by exploring premia patterns over time. In particular, we find that GARCH(1,1) is an inefficient identifier of jumps, and show that Hampel [1971] is a superior procedure.
Book Synopsis Volatility and Time Series Econometrics by : Mark Watson
Download or read book Volatility and Time Series Econometrics written by Mark Watson and published by Oxford University Press. This book was released on 2010-02-11 with total page 432 pages. Available in PDF, EPUB and Kindle. Book excerpt: A volume that celebrates and develops the work of Nobel Laureate Robert Engle, it includes original contributions from some of the world's leading econometricians that further Engle's work in time series economics
Book Synopsis Aggregate Volatility and Market Jump Risk by : Yakup Eser Arısoy
Download or read book Aggregate Volatility and Market Jump Risk written by Yakup Eser Arısoy and published by . This book was released on 2016 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is well documented that stock returns have different sensitivities to changes in aggregate volatility, however less is known about their sensitivity to market jump risk. By using Samp;P 500 crash-neutral at-the-money straddle and out-of-money put returns as proxies for aggregate volatility and market jump risk, I document significant differences between volatility and jump loadings of value versus growth, and small versus big portfolios. In particular, small (big) and value (growth) portfolios exhibit negative (positive) and significant volatility and jump betas. I also provide further evidence that both volatility and jump risk factors are priced and negative.
