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option-implied volatility measures. A small-scale Monte Carlo experiment suggests that the procedure works well in practice …"This paper proposes a method for constructing a volatility risk premium, or investor risk aversion, index. The method … volatilities results in significant temporal dependencies in the estimated stochastic volatility risk premium, which we in turn …
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We show that the compensation for rare events accounts for a large fraction of the average equity and variance risk premia. Exploiting the special structure of the jump tails and the pricing thereof we identify and estimate a new Investor Fears index. The index suggests both large and...
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