positions. The framework starts with the near-term dynamics of the implied volatility surface and derives no … volatilities can also be constructed specific to, and different across, option contracts. Applying the new theory to the S&P 500 … index time series and options data, we extract volatility risk and risk premium from the volatility surfaces, and find that …

This paper documents the fact that in options markets, the (percentage) implied volatility bid-ask spread increases at … risk in an incomplete market with both directional and volatility risk. We extend this model to multi-periods and show that … the same phenomenon occurs there as well. Two new implications are generated: a volatility level effect and a volatility …

Based on the theory of static replication of variance swaps we assess the sign and magnitude of variance risk premiums … general shape of the implied volatility function of the corresponding currency pair. Overall, we conclude that there is a …

predictive capability of currency volatility risk premia for currency returns. The volatility risk premium -- the difference … between expected realized volatility and model-free implied volatility -- reflects the costs of insuring against currency … volatility fluctuations, and the strategy sells high-insurance-cost currencies and buys low-insurance-cost currencies. The …

We identify a global risk factor in the cross-section of implied volatility returns in currency markets. A zero …-cost strategy that buys forward volatility agreements with downward sloping implied volatility curves and sells those with upward … slopes - volatility carry strategy - generates significant excess returns. The covariation with volatility carry returns …