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Subjective Model Uncertainty, Variance Risk Premium, and Speculative Trading

Guo, Ming - 2019

This paper develops a dynamic model of prices and trades in a risky security and an option, where agents use different subjective likelihood functions to interpret a public signal, but they are initially uncertain about the signal precision or mean. Our model can explain the seemingly overpriced...

Persistent link: https://www.econbiz.de/10012905297

Volatility-Decay Risk Premia

Galai, Dan - 2019

We estimate post-jump volatility-decay risk premia as the predictable ‎difference between periods of high and low diffusive volatility. By ‎constructing straddle portfolios after positive and negative jumps occur, we ‎show that the gains that these hedged options' portfolios yield...

Persistent link: https://www.econbiz.de/10012905610

The Skew Risk Premium in the Equity Index Market

Kozhan, Roman - 2019

We measure the skew risk premium in the equity index market through the skew swap. We argue that just as variance swaps can be used to explore the relationship between the implied variance in option prices and realized variance, so too can skew swaps be used to explore the relationship between...

Persistent link: https://www.econbiz.de/10012906107

Does Debt Explain the Investment Premium?

Poulsen, Thomas K. - 2018

explanations of the investment premium including the q-theory of investment and behavioral finance. To explain the evidence, I …

Persistent link: https://www.econbiz.de/10012907925

Expected Equity Returns Should Correlate with Idiosyncratic Risk

Bruno, Giovanni - 2018

law of one price, and is present in all but risk-neutral economies. We test the cross-sectional predictions of our theory … equity than for assets, and stronger for more levered firms — consistent with the theory. We test also the timeseries … implications of the theory. Time variation in asset ivol causes time variation in the option value of equity that translates into …

Persistent link: https://www.econbiz.de/10012910108

How Much Would You Pay to Resolve Volatility Risk in Agricultural Commodity Markets?

Yan, Lei - 2019

This article investigates the pricing of volatility risk in agricultural commodity markets. We show theoretically that the cost of bearing volatility risk can be measured using returns to delta-neutral straddles. Using a sample of options for five commodities (corn, soybeans, Chicago wheat, live...

Persistent link: https://www.econbiz.de/10012889824

Asset Pricing With Incomplete Information and Fat Tails

Bidarkota, Prasad V. - 2019

We study a consumption-based asset pricing model with incomplete information and a- stable shocks. Incomplete information leads to a non-Gaussian filtering problem. Bayesian updating generates fluctuating confidence in the agents' estimate of the persistent component of the dividends' growth...

Persistent link: https://www.econbiz.de/10012890005

Ambiguity, Long-Run Risks, and Asset Prices

Wei, Bin - 2019

We generalize the long-run risks (LRR) model in Bansal and Yaron (2004) by incorporating the recursive smooth ambiguity aversion preferences of Klibanoff, Marinacci, and Mukerji (2005, 2009) and time-varying ambiguity. Relative to the Bansal-Yaron model, the generalized LRR model remains...

Persistent link: https://www.econbiz.de/10012896734

Commodity Return Predictability : Evidence from Implied Variance, Skewness and their Risk Premia

Finta, Marinela Adriana - 2019

This paper investigates the role of realized and implied and their risk premia (variance and skewness) for commodities' future returns. We estimate these moments from high frequency and commodity futures option data that results in forward-looking measures. Risk premia are computed as the...

Persistent link: https://www.econbiz.de/10012899872

Volatility-of-Volatility Risk

Huang, Darien - 2018

We show that time-varying volatility of volatility is a significant risk factor which affects the cross-section and the time-series of index and VIX option returns, beyond volatility risk itself. Volatility and volatility-of-volatility measures, identified model-free from options data as the VIX...

Persistent link: https://www.econbiz.de/10012937769