In this paper I solve portfolio choice problem with stochastic volatility and minimum performance constraint. The latter has an important effect on optimal demand for volatility risk. Our findings suggest that in the context of demand-based option pricing the volatility risk premium which clears...

We formally compare two versions of the market Variance Risk Premium (VRP) measured in the equity and option markets. Both VRPs follow common patterns and respond similarly to changes in volatility and economic conditions. However, we reject the null hypothesis that they are identical and find...

We formally compare two versions of the market Variance Risk Premium (VRP) measured in the equity and option markets. Both VRPs follow common patterns and respond similarly to changes in volatility and economic conditions. However, we reject the null hypothesis that they are identical and find...