Dynamic estimation of volatility risk premia and investor risk aversion from option-implied and realized volatilities
By: Tim Bollerslev, Michael Gibson, and Hao Zhou.
Contributors: Gibson, Michael S.; Zhou, Hao, 1967-
Series: Finance and economics discussion series ;; 2004-56; Finance and economics discussion series (Online) ;; 2004-56.
Publisher: Federal Reserve Board
Published: 2004
Place of publication: Washington, D.C
Language: eng
Format: Electronic resource
Description: "This paper proposes a method for constructing a volatility risk premium, or investor risk aversion, index.  The method is intuitive and simple to implement, relying on the sample moments of the recently popularized model-free realized and option-implied volatility measures.  A small-scale Monte Carlo experiment suggests that the procedure works well in practice.  Implementing the procedure with actual S&P 500 option-implied volatilities and high-frequency five-minute-based realized volatilities results in significant temporal dependencies in the estimated stochastic volatility risk premium, which we in turn relate to a set of underlying macro-finance state variables.  We also find that the extracted volatility risk premium helps predict future stock market returns"--Federal Reserve Board web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 10/21/2004.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.