Based on the theory of static replication of variance swaps we assess the sign and magnitude of variance risk premiums in foreign exchange markets. We find significantly negative risk premiums when realized variance is computed from intraday data with low frequency. As a likely consequence of...

Based on the theory of static replication of variance swaps we assess the sign and magnitude of variance risk premiums in foreign exchange markets. We find significantly negative risk premiums when realized variance is computed from intraday data with low frequency. As a likely consequence of...

This article examines the fine structure of risk-neutral currency returns. For this purpose, I specify models comprising pure or time-changed diffusion risk, pure or time-changed jumps, or both. The models are calibrated to vanilla options and subsequently applied to the one-touch option market....