Christoffersen, Peter; Heston, Steven; Jacobs, Kris - In: Review of Financial Studies 26 (2013) 8, pp. 1963-2006
We develop a GARCH option model with a new pricing kernel allowing for a variance premium. While the pricing kernel is monotonic in the stock return and in variance, its projection onto the stock return is nonmonotonic. A negative variance premium makes it U shaped. We present new semiparametric...