Author : Cai Zhu
Publisher :
ISBN 13 :
Total Pages : 38 pages
Book Rating : 4.:/5 (13 download)
Book Synopsis Variance Premiums in an Equilibrium Model with Two Stochastic Volatility Factors by : Cai Zhu
Download or read book Variance Premiums in an Equilibrium Model with Two Stochastic Volatility Factors written by Cai Zhu and published by . This book was released on 2013 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: Variance premium is studied under a discrete-time consumption-based equilibrium model, with two stochastic volatility factors. The formulas for VIX and variance premium term structure are derived. As an empirical application of the model, the predicion power of VIX and variance premium term structure are studied, under the context of aggregate market return prediction. The implication of the model is that variance premium term structure contains information about two underlying volatility factors, and attitude of risks, therefore, should have prediction power for future equity returns. Use data of returns, realized variance and VIX term structure for S&P 500 index, the R2 of quarterly horizon prediction regression can achieve as high as 12%.