Term spreads of implied volatility smirk and variance risk premium

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Title

Term spreads of implied volatility smirk and variance risk premium

Content partner

University of Otago

Collection

Otago University Research Archive

Description

In this paper, we study the pattern of S&P 500 index options implied volatility (IV) curves and their predictive ability for the variance risk premium (VRP). We explore this predictability employing by the Zhang and Xiang IV factor estimation. We show that the level factor term spread significantly predicts the VRP, proxied by straddle returns and variance swap returns, in both in‐sample and out‐of‐sample tests. The predictability is more pronounced for straddle returns rather than variance s...

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Format

Research paper

Research format

Scholarly text / Journal article

Thesis level

Article

Date created

2023-07

Creator

Guo, Wei / Ruan, Xinfeng / Gehricke, Sebastian A. / Zhang, Jin E.

URL

https://hdl.handle.net/10523/19403

Related subjects

implied volatility / prediction / SPX options / term spread / variance risk premium

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