Dynamic Relation Between Volatility Risk Premia of Stock and Oil Returns PDF Download
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Author: Nobuhiro Nakamura
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Languages : en
Pages :
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Author: Nobuhiro Nakamura
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Category :
Languages : en
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Author: Tim Bollerslev
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ISBN:
Category :
Languages : en
Pages : 60
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"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:
ISBN:
Category :
Languages : en
Pages : 48
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Book Description
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: Karl Larsson
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Category :
Languages : en
Pages : 34
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This paper investigates model dynamics and risk premia in the short term market for crude oil futures. Stochastic volatility models, with and without jumps, are estimated using data on both futures and option prices. As an economic application we apply the estimated models to the pricing of crude oil variance swaps and an evaluation of the associated variance risk premium. The empirical results point to a positive return risk premium attached to diffusive stochastic volatility while there is not strong evidence of jump risk being priced in the market. Negative volatility and variance risk premia stand out as a robust and significant feature of the data. Jumps play a minor role for representing data and the jump risk component in both variance swaps and variance risk premia is small. Finally, a non-affine model that allows for level dependent volatility of volatility is found to have the best fit to data.
Author: John T. Scruggs
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Category :
Languages : en
Pages : 37
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We investigate two topics: (1) the nature of the dynamic covariance matrix of stock and bond returns, and (2) the intertemporal relation between risk and return. We estimate a conditional two-factor variant of Merton's ICAPM in which long-term government bond returns proxy for the second risk factor. Stock and bond risk premia are linear functions of an asymmetric dynamic covariance (ADC) matrix for stock and bond returns. We find that conditional bond variance responds symmetrically to bond return shocks but is virtually unaffected by stock return shocks, while conditional stock variance responds asymmetrically to both stock and bond return shocks. Models that impose a constant correlation restriction on the covariance matrix between stock and bond returns are strongly rejected. We find that intertemporal risk-return relationships are very sensitive to the specification of conditional first and second moments.
Author: Yuming Li
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Languages : en
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In this paper I relate the risk premia in the stock and bond markets to the conditional volatility of returns and time-varying reward-to-volatility variables. I find that the relation between the expected returns on the stocks and bonds and the volatility of returns is time varying. I provide an approach to evaluating the relative importance of the time-varying volatility of returns and reward-to-volatility variables for explaining the predictability of risk premia for stock and bond returns. I show that changing reward-to-volatility variables explain more predictable variation in the risk premia for stocks and bonds than changing volatility of returns.
Author: Peter Christoffersen
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Category :
Languages : en
Pages :
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Author: José Renato Haas Ornelas
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Category :
Languages : en
Pages : 0
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Author: Robert A. Jarrow
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Category : Derivative securities
Languages : en
Pages : 472
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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: Stefan Nagel
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ISBN:
Category : Portfolio management
Languages : en
Pages : 67
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Book Description
We examine subjective risk premia implied by return expectations of individual investors and professionals for aggregate portfolios of stocks, bonds, currencies, and commodity futures. While in-sample predictive regressions with realized excess returns suggest that objective risk premia vary countercyclically with business cycle variables and aggregate asset valuation measures, subjective risk premia extracted from survey data do not comove much with these variables. This lack of cyclicality of subjective risk premia is a pervasive property that holds in expectations of different groups of market participants and in different asset classes. A similar lack of cyclicality appears in out-of-sample fore- casts of excess returns, which suggests that investors' learning of forecasting relationships in real time may explain much of the cyclicality gap. These findings cast doubt on models that explain time-varying objective risk premia inferred from in-sample regressions with countercyclical variation in perceived risk or risk aversion. We further find a link between subjective perceptions of risk and subjective risk premia, which points toward a positive risk-return tradeoff in subjective beliefs.
