Jump and volatility risk and risk premia
Subtitle: a new model and lessons from S&P 500 options
By: Pedro Santa-Clara, Shu Yan.
Contributors: Yan, Shu, 1968-; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10912; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10912.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Options (Finance) -- Econometric models.
Description: "We use a novel pricing model to filter times series of diffusive volatility and jump intensity from S&P 500 index options.  These two measures capture the ex-ante risk assessed by investors.  We find that both components of risk vary substantially over time, are quite persistent, and correlate with each other and with the stock index.  Using a simple general equilibrium model with a representative investor, we translate the filtered measures of ex-ante risk into an ex-ante risk premium.  We find that the average premium that compensates the investor for the risks implicit in option prices, 10.1 percent, is about twice the premium required to compensate the same investor for the realized volatility, 5.8 percent.  Moreover, the ex-ante equity premium that we uncover is highly volatile, with values between 2 and 32 percent.  The component of the premium that corresponds to the jump risk varies between 0 and 12 percent"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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