Relevant bibliographies by topics / Volatility premium

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  1. Journal articles
  2. Dissertations / Theses
  3. Books
  4. Book chapters
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Academic literature on the topic 'Volatility premium'

Author: Grafiati
Published: 4 June 2021
Last updated: 13 February 2022

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Journal articles on the topic "Volatility premium"

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Barth, Mary E., and Eric C. So. "Non-Diversifiable Volatility Risk and Risk Premiums at Earnings Announcements." Accounting Review 89, no. 5 (2014): 1579–607. http://dx.doi.org/10.2308/accr-50758.

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ABSTRACT This study seeks to determine whether earnings announcements pose non-diversifiable volatility risk that commands a risk premium. We find that investors anticipate some earnings announcements to convey news that increases market return volatility and pay a premium to hedge this non-diversifiable risk. In particular, we find evidence of risk premiums embedded in prices of firms' traded options that are significantly positively associated with the extent to which the firms' earnings announcements pose non-diversifiable volatility risk. In addition, we find that volatility risk premiums are concentrated among bellwether firms and result in predictable variation in option straddle returns around earnings announcements. Taken together, our findings show that some earnings announcements pose non-diversifiable volatility risk that commands a risk premium. JEL Classifications: M41; G12; G13; G14
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Eraker, Bjorn. "The Volatility Premium." Quarterly Journal of Finance 11, no. 03 (2021): 2150014. http://dx.doi.org/10.1142/s2010139221500142.

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The difference, average risk-neutral and physical volatility, is substantial and translates into a large return premium for sellers of index options. This paper studies a general equilibrium model based on long-run risk in an effort to explain the premium. In estimating the model using data on stock returns and volatility (VIX), the model captures the premium and also the large negative correlation between shocks to volatility and stock prices. Numerical simulations verify that writers of index options earn high rates of return in equilibrium and that the return patterns are similar to that seen in the S&P 500 index options data.
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Cheng, Jingfei. "Volatility Forecasting and Volatility Risk Premium." Journal of Applied Mathematics and Physics 03, no. 01 (2015): 98–102. http://dx.doi.org/10.4236/jamp.2015.31014.

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Nguyen, Tristan, and Alexander Schüßler. "Anomalien auf Aktienmärkten." Der Betriebswirt: Volume 54, Issue 2 54, no. 2 (2013): 26–30. http://dx.doi.org/10.3790/dbw.54.2.26.

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In diesem Beitrag werden Anomalien (Puzzles) vorgestellt, die sich auf den gesamten Aktienmarkt beziehen. Equity Premium Puzzle steht für die zu hohe empirisch beobachtete Marktrisikoprämie. Sie kann nicht mit den Präferenzen der Erwartungsnutzentheorie erklärt werden. Volatility Puzzle bezeichnet die erhöhte Volatilität von Aktien. Diese schwanken zu stark, als dass sie den von rationalen Investoren diskontierten Wert erwarteter Dividenden widerspiegeln könnten. Predictability Puzzle beschreibt, dass gewisse Indikatoren die Preisentwicklung auf Marktebene vorhersagen. Für diese Anomalien werden verhaltenswissenschaftliche Erklärungen angeführt. This paper presents aggregate market anomalies. Equity Premium Puzzle means that the historical equity premium is too high to be explained by preferences of expected ultility theory. According to Volatility Puzzle, stocks move too much to be justified by dividend movements. Predictibility Puzzle describes that there are several ratios that predict aggregate market performance. We give behavioral explanations for those anomalies. Keywords: volatility puzzle, prospect theory, predictability puzzle, equity premium puzzle
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Posedel Šimović, Petra, and Azra Tafro. "Pricing the Volatility Risk Premium with a Discrete Stochastic Volatility Model." Mathematics 9, no. 17 (2021): 2038. http://dx.doi.org/10.3390/math9172038.

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Investors’ decisions on capital markets depend on their anticipation and preferences about risk, and volatility is one of the most common measures of risk. This paper proposes a method of estimating the market price of volatility risk by incorporating both conditional heteroscedasticity and nonlinear effects in market returns, while accounting for asymmetric shocks. We develop a model that allows dynamic risk premiums for the underlying asset and for the volatility of the asset under the physical measure. Specifically, a nonlinear in mean time series model combining the asymmetric autoregressive conditional heteroscedastic model with leverage (NGARCH) is adapted for modeling return dynamics. The local risk-neutral valuation relationship is used to model investors’ preferences of volatility risk. The transition probabilities governing the evolution of the price of the underlying asset are adjusted for investors’ attitude towards risk, presenting the asset returns as a function of the risk premium. Numerical studies on asset return data show the significance of market shocks and levels of asymmetry in pricing the volatility risk. Estimated premiums could be used in option pricing models, turning options markets into volatility trading markets, and in measuring reactions to market shocks.
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Silva, Nuno. "Industry-based equity premium forecasts." Studies in Economics and Finance 35, no. 3 (2018): 426–40. http://dx.doi.org/10.1108/sef-10-2016-0256.

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Purpose This paper aims to study whether the industry indexes predict the evolution of the broad stock market in the USA. Design/methodology/approach The study uses industry indexes to predict the equity premium in the USA. It considers several types of predictive models: constant coefficients and constant volatility, drifting coefficients and constant volatility, constant coefficients and stochastic volatility and drifting coefficients and stochastic volatility. The models are estimated through the particle learning algorithm, which is suitable for dealing with the problem that an investor faces in practice, given that it allows the investor to revise the parameters as new information arrives. The individual forecasts are combined based on their past performance. Findings The results reveal that models exhibit significant predictive ability. The models with constant volatility exhibit better performance, at the statistical level, but the models with stochastic volatility generate higher gains for a mean–variance investor. Practical implications This study’s findings are valuable not only for finance researchers but also for private investors and mutual fund managers, who can use these forecasts to improve the performance of their portfolios. Originality/value To the best of the knowledge of the author, this is the first paper that uses particle learning and combination of forecasts to predict the equity premium in the USA based on industry indexes. The study shows that the models generate valuable forecasts over the long time span that is considered.
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Brennan, Michael J., and Yihong Xia. "Stock price volatility and equity premium." Journal of Monetary Economics 47, no. 2 (2001): 249–83. http://dx.doi.org/10.1016/s0304-3932(01)00042-3.

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Vilerts, Karlis. "PUBLIC SECTOR WAGE PREMIUM AND OUTPUT VOLATILITY IN THE EUROPEAN UNION." Business, Management and Education 16 (September 6, 2018): 160–73. http://dx.doi.org/10.3846/bme.2018.2145.

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This study seeks to uncover the role played by the public sector wage premium in explaining the output volatility. Furthermore, the study also explores the factors that might substantiate the cross-country differences in the volatility of the public sector wage premium. Using cross-sectional regression analysis for the European Union countries, the findings indicate that more volatile public sector wage premium is associated with higher fluctuations in the private sector employment and less stable growth. Findings also suggest that volatility of the public sector wage premium tends to be larger in countries with smaller governments and in countries where collective bargaining is the predominant regime for public sector wage setting.
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Beracha, El i., Julia Freybote, and Zhenguo Lin. "The Determinants of the Ex Ante Risk Premiumin Commercial Real Estate." Journal of Real Estate Research 41, no. 3 (2019): 411–41. http://dx.doi.org/10.22300/0896-5803.41.3.411.

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We investigate the determinants of the ex ante risk premium in commercial real estate. Using a 20-year time series and Markov-switching regression, we find that the ex ante risk premium is affected by fundamental and non-fundamental determinants, albeit not symmetrically when risk premiums are increasing and decreasing. In particular, we find that changes in debt capital market conditions have a higher predictive power for changes in the ex ante risk premium when it is increasing, while changes in stock market volatility and commercial real estate market returns have a higher predictive power when the risk premium is on the decline. In addition, changes in commercial real estate sentiment and NAREIT returns can predict changes in the ex ante risk premium; however, the predictive power of these variables varies across property types and risk premium (risk perception) states.
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Low, Buen Sin, and Shaojun Zhang. "The Volatility Risk Premium Embedded in Currency Options." Journal of Financial and Quantitative Analysis 40, no. 4 (2005): 803–32. http://dx.doi.org/10.1017/s0022109000001988.

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AbstractThis study employs a non-parametric approach to investigate the volatility risk premium in the over-the-counter currency option market. Using a large database of daily delta-neutral straddle quotes in four major currencies—the British pound, the euro, the Japanese yen, and the Swiss franc—we find that volatility risk is priced in all four currencies across different option maturities. We find that the volatility risk premium is negative, with the premium decreasing in maturity. Finally, we also find evidence that jump risk may be priced in the currency option market.
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Dissertations / Theses on the topic "Volatility premium"

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Kennedy, Anna Katherine. "The risk premium in a stochastic volatility model." Thesis, Imperial College London, 2002. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.399267.

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Huang, (Alan) Guoming. "Essays on the equity premium puzzle, earnings volatility, and expected stock returns." Diss., Connect to online resource, 2005. http://wwwlib.umi.com/dissertations/fullcit/3186936.

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Hogan, Reed M. "Quantifying the Variance Risk Premium in VIX Options." Scholarship @ Claremont, 2011. http://scholarship.claremont.edu/cmc_theses/147.

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This thesis uses synthetically created variance swaps on VIX futures to quantify the variance risk premium in VIX options. The results of this methodology suggest that the average premium is -3.26%, meaning that the realized variance on VIX futures is on average less than the variance implied by the swap rate. This premium does not vary with time or the level of the swap rate as much as premiums in other asset classes. A negative risk premium should mean that VIX option strategies that are net credit should be profitable. This thesis tests two simple net credit strategies with puts and calls, and finds that the call strategy is profitable while the put strategy is not.
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Chen, Andrew Y. "Essays on Asset Pricing in Production Economies." The Ohio State University, 2014. http://rave.ohiolink.edu/etdc/view?acc_num=osu1398770166.

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Chandorkar, Pankaj Avinash. "The determinants of UK Equity Risk Premium." Thesis, Cranfield University, 2016. http://dspace.lib.cranfield.ac.uk/handle/1826/11860.

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Equity Risk Premium (ERP) is the cornerstone in Financial Economics. It is a basic requirement in stock valuation, evaluation of portfolio performance and asset allocation. For the last decades, several studies have attempted to investigate the relationship between macroeconomic drivers of ERP. In this work, I empirically investigate the macroeconomic determinants of UK ERP. For this I parsimoniously cover a large body of literature stemming from ERP puzzle. I motivate the empirical investigation based on three mutually exclusive theoretical lenses. The thesis is organised in the journal paper format. In the first paper I review the literature on ERP over the past twenty-eight years. In particular, the aim of the paper is three fold. First, to review the methods and techniques, proposed by the literature to estimate ERP. Second, to review the literature that attempts to resolve the ERP puzzle, first coined by Mehra and Prescott (1985), by exploring five different types of modifications to the standard utility framework. And third, to review the literature that investigates and develops relationship between ERP and various macroeconomic and market factors in domestic and international context. I find that ERP puzzle is still a puzzle, within the universe of standard power utility framework and Consumption Capital Asset Pricing Model, a conclusion which is in line with Kocherlakota (1996) and Mehra (2003). In the second paper, I investigate the impact of structural monetary policy shocks on ex-post ERP. More specifically, the aim of this paper is to investigate the whether the response of UK ERP is different to the structural monetary policy shocks, before and after the implementation of Quantitative Easing in the UK. I find that monetary policy shocks negatively affect the ERP at aggregate level. However, at the sectoral level, the magnitude of the response is heterogeneous. Further, monetary policy shocks have a significant negative (positive) impact on the ERP before (after) the implementation of Quantitative Easing (QE). The empirical evidence provided in the paper sheds light on the equity market’s asymmetric response to the Bank of England’s monetary policy before and after the monetary stimulus. In the third paper I examine the impact of aggregate and disaggregate consumption shocks on the ex-post ERP of various FTSE indices and the 25 Fama-French style value-weighted portfolios, constructed on the basis of size and book-to-market characteristics. I extract consumption shocks using Structural Vector Autoregression (SVAR) and investigate its time-series and cross-sectional implications for ERP in the UK. These structural consumption shocks represent deviation of agent’s actual consumption path from its theoretically expected path. Aggregate consumption shocks seem to explain significant time variation in the ERP. At disaggregated level, when the actual consumption is less than expected, the ERP rises. Durable and Semi-durable consumption shocks have a greater impact on the ERP than non-durable consumption shocks. In the fourth and final paper I investigate the impact of short and long term market implied volatility on the UK ERP. I also examine the pricing implications of innovations to short and long term implied market volatility in the cross-section of stocks returns. I find that both the short and the long term implied volatility have significant negative impact on the aggregate ERP, while at sectoral level the impact is heterogeneous. I find both short and long term volatility is priced negatively indicating that (i) investors care both short and long term market implied volatility (ii) investors are ready to pay for insurance against these risks.
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Averland, Amanda, and Nicklas Bredberg. "Gröna obligationer på den skandinaviska marknaden : Sambandet mellan obligationers gröna egenskaper och dess yield, likviditet och volatilitet." Thesis, Högskolan i Gävle, Avdelningen för ekonomi, 2020. http://urn.kb.se/resolve?urn=urn:nbn:se:hig:diva-34144.

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Med finansiella egenskaper som liknar konventionella obligationer spelar gröna obligationer en viktig roll i kampen mot klimatförändringar. Trots att marknaden för gröna obligationer har vuxit snabbt sedan 2008 så har sambandet mellan de gröna egenskaperna hos en obligation och dess avkastning inte studerats i en större utsträckning. I den här studien använder vi data från Eikon och regressionsmodeller för att undersöka hur de gröna egenskaperna påverkar obligationens avkastning, likviditet och volatilitet på den skandinaviska marknaden. Vår studie visar att gröna obligationer har en lägre avkastning (-42,7 baspunkter) än motsvarande konventionella obligationer. Resultatet i vår studie tyder också på skillnader i likviditet och volatilitet (0,01 respektive 0,30 baspunkter) men dessa resultat är ej signifikanta. Eftersom det här forskningsområdet är i ett tidigt stadie kan den här studien ligga till grund för framtida forskning. I takt med att den skandinaviska marknaden för gröna obligationer växer kan vår studie replikeras för att se om resultaten blir mer signifikanta när urvalsstorleken blir större.<br>With financial attributes similar to conventional bonds, green bonds play an important role in the fight against climate change. Even though the green bond market has seen a rapid growth since 2008, the relationship between the bond's greenness and its yield has not been studied to a great extent. In this study, we use a set of data from Eikon and regression analysis to examine how the green traits of a bond affects its yield, liquidity and volatility on the Scandinavian market. We match 62 green and conventional bonds into 31 bond pairs and show that the yield of green bonds are -42,7 basis points lower than its conventional counterparts. Our study also indicates that green bonds are slightly more liquid (0,01 basis points) and more volatile (0,30 basis points) but these results are not significant. Since the research in this field is in its initial phase, this study may serve as a foundation for future research. If the market for green bonds proceeds to grow in Scandinavia, our study could be replicated to see if the results may be more significant as the sample size increases.
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Wang, Zhiguang. "Three Essays on Asset Pricing." FIU Digital Commons, 2009. http://digitalcommons.fiu.edu/etd/91.

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In this dissertation, I investigate three related topics on asset pricing: the consumption-based asset pricing under long-run risks and fat tails, the pricing of VIX (CBOE Volatility Index) options and the market price of risk embedded in stock returns and stock options. These three topics are fully explored in Chapter II through IV. Chapter V summarizes the main conclusions. In Chapter II, I explore the effects of fat tails on the equilibrium implications of the long run risks model of asset pricing by introducing innovations with dampened power law to consumption and dividends growth processes. I estimate the structural parameters of the proposed model by maximum likelihood. I find that the stochastic volatility model with fat tails can, without resorting to high risk aversion, generate implied risk premium, expected risk free rate and their volatilities comparable to the magnitudes observed in data. In Chapter III, I examine the pricing performance of VIX option models. The contention that simpler-is-better is supported by the empirical evidence using actual VIX option market data. I find that no model has small pricing errors over the entire range of strike prices and times to expiration. In general, Whaley’s Black-like option model produces the best overall results, supporting the simpler-is-better contention. However, the Whaley model does under/overprice out-of-the-money call/put VIX options, which is contrary to the behavior of stock index option pricing models. In Chapter IV, I explore risk pricing through a model of time-changed Lévy processes based on the joint evidence from individual stock options and underlying stocks. I specify a pricing kernel that prices idiosyncratic and systematic risks. This approach to examining risk premia on stocks deviates from existing studies. The empirical results show that the market pays positive premia for idiosyncratic and market jump-diffusion risk, and idiosyncratic volatility risk. However, there is no consensus on the premium for market volatility risk. It can be positive or negative. The positive premium on idiosyncratic risk runs contrary to the implications of traditional capital asset pricing theory.
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Beaudoux, Guillaume, and William Leau. "ADR premium, its construction around crisis : To what extent is the ADR premium built by the same variables during a crisis as during a non-crisis period?" Thesis, Umeå universitet, Företagsekonomi, 2013. http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-75723.

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In this thesis, we analyze premium relationship of American depositary receipts (ADR) and their underlying shares. Several researchers have previously identified the main variables influencing the construction of ADR premium of cross-listed companies. The aim of this study is to investigate to what extent the main variables affect differently the construction of ADR premium in crisis period. For the purpose of the study, two periods are defined. The period from June 2006 to October 2007 represents the non-crisis period whereas the period from October 2007 to March 2009 represents the crisis period. Our cross-listing sample consists of companies that have level II and level III ADR listed on the NYSE and the NASDAQ over the two periods. The tested variables influencing the premium are the liquidity, the currency exchange rate, the home and US market and the volatility. The liquidity is measured according to two ratios, the Amihud ratio and the turnover ratio. The currency exchange rate is the current exchange rate denominated in US dollar. The home markets are the reference indexes of the home country to which the underlying share of the ADR belong. The S&amp;P 500 Index is used as a proxy for the US market. Finally, the US market volatility is analyzed with the CBOE VIX volatility Index. Multiple and simple OLS regressions are used to analyze the impacts of variables on ADR premium. The T-statistic is chosen to test the explanatory power of variables. The regressions are divided in three main parts. The first one is dedicated to the liquidity variables, then the second one to the home and US market, currency exchange rate and CBOE VIX volatility Index. Finally the last part keeps only the variables with the stronger explanatory power in order to define two equations of the factor influencing mostly the premium. We have found that crisis strongly modifies the relationship between ADR premium and the main variables. In crisis period, the regressions show that liquidity becomes a factor with a greater explanatory power of ADR premium. However the other main variables experience the opposite effect with a much lower T-test in times of crisis. It seems that the currency exchange rate, the home and US market as well as the volatility lose their explanatory power in times of crisis to the benefit of liquidity variables.
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Bodin, Pierre-Anthony. "Optimisation des modèles d'évaluation et de couverture des options financières sous contraintes de liquidité." Thesis, Cergy-Pontoise, 2014. http://www.theses.fr/2014CERG0711.

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Optimisation des modèles d'évaluation et de couverture d'options financières sous contraintes de liquidité<br>Optimization of pricing and hedging models for financial options under liquidity constraints
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Cunha, João Marco Braga da. "Testando a existência de Prêmio de Volatilidade em Ações Líquidas da Bovespa." reponame:Repositório Institucional do FGV, 2008. http://hdl.handle.net/10438/2712.

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Submitted by Daniella Santos (daniella.santos@fgv.br) on 2009-08-07T12:21:28Z No. of bitstreams: 1 Dissertação_João_Marco.pdf: 182972 bytes, checksum: 496cda0ecb8e5b1f2b520e21b3b169cf (MD5)<br>Approved for entry into archive by Antoanne Pontes(antoanne.pontes@fgv.br) on 2009-08-07T17:33:07Z (GMT) No. of bitstreams: 1 Dissertação_João_Marco.pdf: 182972 bytes, checksum: 496cda0ecb8e5b1f2b520e21b3b169cf (MD5)<br>Made available in DSpace on 2009-08-07T17:33:07Z (GMT). No. of bitstreams: 1 Dissertação_João_Marco.pdf: 182972 bytes, checksum: 496cda0ecb8e5b1f2b520e21b3b169cf (MD5)<br>The existence and the sign of the volatility premium has been causing controversies in the specialized literature. This work proposed, criticized and applied a novel methodology, aiming to test statistically the existence of a premium for volatility, with the advantages of testing for a set of equities jointly, not for individual series, and independent of any specific functional form for the relationship between the expected return and volatility. The results obtained on the application with a set of selected equities from Bovespa were favorable to the existence of the premium.<br>A existência e o sinal do prêmio de volatilidade têm causado controvérsias dentro da literatura especializada. Este trabalho propôs, criticou e aplicou uma nova metodologia com a natalidade de testar estatisticamente a existência do prêmio de volatilidade, com as vantagens de testar para um conjunto de ações, e não para séries individuais, e de não depender de uma forma funcional específica para e relação entre o retorno e a volatilidade esperados. Os resultados da aplicação para um conjunto selecionado de ações negociadas na Bovespa foram favoráveis à existência do prêmio.
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Books on the topic "Volatility premium"

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Chen, Long. Equity market volatility and expected risk premium. Federal Reserve Bank of St. Louis, 2006.

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Tzavalis, Elias. The persistence in volatility of the US term premium 1970-1986. University of Exeter, Dept. of Economics, 1994.

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Lettau, Martin. Idiosyncratic risk and volatility bounds, or can models with idiosyncratic risk solve the equity premium puzzle? Federal Reserve Bank of New York, 2001.

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Hylton, Keith N. A model of price volatility in insurance markets. American Bar Foundation, 1989.

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Hördahl, Peter. Financial volatility and time-varying risk premia. Lund University, 1997.

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Matovu, John. Volatility and jump risk premia in emerging market bonds. International Monetary Fund, Middle East and Central Asia Dept., 2007.

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Chŏng, Chae-sik. Exchange rate volatilies and time-varying risk premium in East Asia. Korea Institute for International Economic Policy, 2004.

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Kanas, Angelos. Forecasting exchange rate volatility: The significance of volatilities implied in currency options premiums. Aston Business School, 1992.

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Graham, John R. Expectations of equity risk premia, volatility and asymmetry from a corporate finance perspective. National Bureau of Economic Research, 2001.

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King, Mervyn. A heteroscedastic factor model of asset returns and risk premia with time-varying volatility. LSE Financial Markets Group, 1990.

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Book chapters on the topic "Volatility premium"

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Arai, Takuji. "Local Risk-Minimization for Barndorff-Nielsen and Shephard Models with Volatility Risk Premium." In Advances in Mathematical Economics Volume 20. Springer Singapore, 2016. http://dx.doi.org/10.1007/978-981-10-0476-6_1.

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De Silva, Harindra, Gregory M. McMurran, and Megan N. Miller. "Diversification and the Volatility Risk Premium." In Factor Investing. Elsevier, 2017. http://dx.doi.org/10.1016/b978-1-78548-201-4.50014-3.

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Rangvid, Jesper. "The equity premium." In From Main Street to Wall Street. Oxford University Press, 2021. http://dx.doi.org/10.1093/oso/9780198866404.003.0007.

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This chapter explains ‘the equity premium puzzle’ and ‘the risk-free rate puzzle’. The chapter starts out comparing historical returns on stocks to historical returns on bonds, as well as the risks associated with these returns. The standard models economists use to explain the relative sizes of stock and bond returns, and hence the equity risk premium, are based on the exposure of stocks and bonds to economic growth. The chapter explains why these standard theories fail to explain the size of the equity premium. The chapter also explains how economists have changed their workhorse models to reconcile why returns on stocks are so high compared to bond returns. Another key insight in the chapter is that the equity premium does not depend linearly on economic growth in itself, but on the volatility of economic growth and its correlation with stock returns. Two countries can experience the same level of average economic growth, but different volatilities of consumption growth and correlations between consumption growth and stock returns, causing stock returns to differ between countries. This is one more reason why Chapter 6 finds that economic growth does not line up with stock returns across countries.
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"The Price Volatility of Premium Bonds, Par Bonds and Discount Bond." In Inside the Yield Book. John Wiley & Sons, Inc., 2013. http://dx.doi.org/10.1002/9781118656631.ch13.

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Abutaleb, Ahmed, and Michael Papaioannou. "Malliavin Calculus for the Estimation of the U.S. Dollar/Euro Exchange Rate When the Volatility is Stochastic." In Global Information Technology and Competitive Financial Alliances. IGI Global, 2006. http://dx.doi.org/10.4018/978-1-59140-881-9.ch005.

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The tendency of exchange rates to fluctuate markedly and regularly is often referred as currency market volatility. The extent of currency market volatility is a major element of market risk. For financial transactions, volatility represents both costs and profit opportunities. Increased currency market volatility implies higher currency option premia and, therefore, higher hedging costs for investors and importers/exporters. However, for banks and other investment houses dealing in options, an increase in option prices may contribute to higher profits. It has been well established that the volatility of exchange rates changes with time. In recent years, various stochastic volatility models have been proposed in the literature that try to capture the exchange-rate volatility dynamics. In turn, several methods have been developed to estimate the parameters of such stochastic volatility models, with varying results. In this chapter, we propose another method for the estimation of the parameters of an exchange rate function when the volatility follows a stochastic process. Stochastic volatility is represented by a geometric Brownian motion. Using Malliavin calculus, we are able to find an explicit expression for the likelihood function of the observations. Numerical integration methods (Monte-Carlo simulations) and numerical optimization methods (generic algorithms) enable us to find an estimate for the unknown parameters and the volatility. This estimation method is then applied to the U.S. dollar/euro exchange rate. Specifically, first we formulate a U.S. dollar/euro exchange rate equation with a stochastic volatility model. We assume that the observed U.S. dollar/euro exchange rate follows a stochastic differential equation with random volatility, while the unobserved volatility follows a different stochastic differential equation. Then, we obtain the likelihood function of the observations by applying Malliavin calculus. The estimation of the unknown parameters is achieved through the maximization of the likelihood function. Using weekly U.S. dollar/euro exchange rates for the period April 28, 2000, to March 26, 2001, we obtain estimates of the parameters of the U.S. dollar/euro exchange rate function (i.e., the constant of the drift) and the assumed stochastic volatility model (i.e., the constants of the diffusion process). Application of the estimated model to out-of-sample data for the U.S. dollar/euro exchange rate shows a significantly high accuracy of the proposed method, as indicated by the very low root mean square error for the estimated exchange rate. This method can also be applied to other models of financial variables that follow similar processes.
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Hattori, Masazumi, Ilhyock Shim, and Yoshihiko Sugihara. "Volatility Contagion across the Equity Markets of Developed and Emerging Market Economies." In Macroeconomic Shocks and Unconventional Monetary Policy. Oxford University Press, 2019. http://dx.doi.org/10.1093/oso/9780198838104.003.0005.

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Using variance risk premiums (VRPs) nonparametrically calculated from equity markets in selected major developed economies and emerging market economies (EMEs) over 2007–15, this chapter documents the correlation of VRPs across markets, examining whether equity fund flows work as a path through which VRPs spill over globally. It finds that VRPs tend to spike up during market turmoil such as the peak of the global financial crisis and the European debt crisis; that all cross-equity market correlations of VRPs are positive, and that some economy pairs exhibit high levels of the correlation. In terms of volatility contagion, it finds that an increase in US VRPs significantly reduces equity fund flows to other developed economies, but not those to EMEs, following the global financial crisis. Two-stage least squares estimation results show that equity fund flows are a channel for spillover of US VRPs to VRPs in other developed economies.
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Senarathne, Chamil W. "Gambling Behaviour in the Cryptocurrency Market." In Research Anthology on Blockchain Technology in Business, Healthcare, Education, and Government. IGI Global, 2021. http://dx.doi.org/10.4018/978-1-7998-5351-0.ch084.

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This article examines whether the investment strategies of cryptocurrency market involve high-risk gambling. Results show that the cryptocurrency risk premiums co-move closely with the return on CBOE Volatility Index (VIX). As such, the strategies of cryptocurrency trading closely resemble that of high-risk gambling. In other words, traders' expectations co-move closely (significantly) with the expected future payoffs from gambling. The co-movement is more pronounced when the gambling offers gains rather than losses and the payoffs are above average. VIX index returns significantly Granger-cause CSAD of returns (with and without Bitcoin) indicates that the cryptocurrency trading constitutes a form of gambling where the motivation for gambling comes from the amount of variation (i.e. riskiness) in the gambling payoffs. These findings warrant policymakers of countries to revisit the existing regulatory framework governing the conduct of electronic finance in the financial services industry.
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Duffie, Darrell. "A Simple OTC Pricing Model." In Dark Markets. Princeton University Press, 2012. http://dx.doi.org/10.23943/princeton/9780691138961.003.0004.

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This chapter presents a simple introduction to asset pricing in over-the-counter markets. Investors search for opportunities to trade and bargain with counterparties, each counterparty being aware that failure to conduct a trade could lead to a costly new search for a counterparty. In equilibrium, whenever there is gain from trade, the opportunity to search for a new counterparty is dominated by trading at the equilibrium asset price. The asset price reflects the degree of search frictions. Under conditions, illiquidity premia are higher when counterparties are harder to find, when sellers have less bargaining power, when the fraction of qualified owners is smaller, and when risk aversion, volatility, or hedging demand is larger. Supply shocks cause prices to jump, and then “recover” over time, with a pattern that depends on the degree of search frictions. The chapter shows how the equilibrium bargaining powers of the counterparties are determined by search opportunities using the approach of Rubinstein and Wolinsky (1985).
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Kensinger, John W. "A Least-Squares Approach for Estimating the Volatility Implied by Option Premia: Overcoming Smiles and Frowns." In Research in Finance. Emerald Group Publishing Limited, 2015. http://dx.doi.org/10.1108/s0196-382120150000031008.

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Conference papers on the topic "Volatility premium"

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MORAWAKAGE, P. S. "Volatility Modeling and its Impact on Risk premium in Emerging markets." In Second International Conference on Advances In Economics, Social Science and Human Behaviour Study - ESSHBS 2015. Institute of Research Engineers and Doctors, 2015. http://dx.doi.org/10.15224/978-1-63248-076-7-75.

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Ellisor, Scott Patrick, Andrew John Grohmann, Justin Lee Rye, and Jim T. Kaculi. "Premium Anti-Rotation Casing Connector with Metal-to-Metal Seal Optimized for High Fatigue Performance to Meet Market Needs by Reducing OPEX and Risk Exposure." In Offshore Technology Conference. OTC, 2021. http://dx.doi.org/10.4043/31075-ms.

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Abstract The oil and gas industry continues to face the need to reduce risk exposure and OPEX as a means to compensate for market volatility and lower oil prices. Typical casing connector designs and methods of running casing are becoming less viable as the industry struggles to lower installation costs and reduce HSE concerns. This dilemma leads manufactures to provide practical solutions to reduce the risk exposure while driving costs down by reducing installation time and required rig personnel. This paper outlines how this innovative and fully qualified technology lowers overall risk exposure while reducing OPEX during the installation of casing connectors. A new premium threaded connector named BADGeR™ has been designed and fully qualified and its features have been patented. State of the art verification techniques utilizing finite element analysis were used to fully simulate the combined load conditions during the qualification program that mimic field conditions and meet and exceed industry standard requirements. Special consideration was given to connector make-up and metal-to-metal sealing technology, superior fatigue performance, welding, coating, galling, surface finish, and lubrication. After a lengthy iterative design process, the final design was fully qualified following ISO 13679 / API 5C5 with additional fatigue performance testing. Details of the design features, analysis methodology and results, structural and sealability test results, and fatigue test results are presented. Advantages of this casing connector design relative to traditional industry casing connectors are highlighted. BADGeR includes an innovative hands-free anti-rotation mechanism that significantly reduces rig time and HSE risk exposure. The connector has automatic make-up with gas tight metal-to-metal seal performance that is not impacted by increased tension to the string. The fatigue performance of this connector exceeds the current market offerings. This combination of features incorporated into the connector has gained the attention of the industry and the opportunity to use this technology for critical service wells applications.
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Ciani, Andrea, John P. Wood, Anders Wickström, et al. "Sequential Combustion in Ansaldo Energia Gas Turbines: The Technology Enabler for CO2-Free, Highly Efficient Power Production Based on Hydrogen." In ASME Turbo Expo 2020: Turbomachinery Technical Conference and Exposition. American Society of Mechanical Engineers, 2020. http://dx.doi.org/10.1115/gt2020-14794.

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Abstract Today gas turbines and combined cycle power plants play an important role in power generation and in the light of increasing energy demand, their role is expected to grow alongside renewables. In addition, the volatility of renewables in generating and dispatching power entails a new focus on electricity security. This reinforces the importance of gas turbines in guaranteeing grid reliability by compensating for the intermittency of renewables. In order to achieve the Paris Agreement’s goals, power generation must be decarbonized. This is where hydrogen produced from renewables or with CCS (Carbon Capture and Storage) comes into play, allowing totally CO2-free combustion. Hydrogen features the unique capability to store energy for medium to long storage cycles and hence could be used to alleviate seasonal variations of renewable power generation. The importance of hydrogen for future power generation is expected to increase due to several factors: the push for CO2-free energy production is calling for various options, all resulting in the necessity of a broader fuel flexibility, in particular accommodating hydrogen as a future fuel feeding gas turbines and combined cycle power plants. Hydrogen from methane reforming is pursued, with particular interest within energy scenarios linked with carbon capture and storage, while the increased share of renewables requires the storage of energy for which hydrogen is the best candidate. Compared to natural gas the main challenge of hydrogen combustion is its increased reactivity resulting in a decrease of engine performance for conventional premix combustion systems. The sequential combustion technology used within Ansaldo Energia’s GT36 and GT26 gas turbines provides for extra freedom in optimizing the operation concept. This sequential combustion technology enables low emission combustion at high temperatures with particularly high fuel flexibility thanks to the complementarity between its first stage, stabilized by flame propagation and its second (sequential) stage, stabilized by auto-ignition. With this concept, gas turbines are envisaged to be able to provide reliable, dispatchable, CO2-free electric power. In this paper, an overview of hydrogen production (grey, blue, and green hydrogen), transport and storage are presented targeting a CO2-free energy system based on gas turbines. A detailed description of the test infrastructure, handling of highly reactive fuels is given with specific aspects of the large amounts of hydrogen used for the full engine pressure tests. Based on the results discussed at last year’s Turbo Expo (Bothien et al. GT2019-90798), further high pressure test results are reported, demonstrating how sequential combustion with novel operational concepts is able to achieve the lowest emissions, highest fuel and operational flexibility, for very high combustor exit temperatures (H-class) with unprecedented hydrogen contents.
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Reports on the topic "Volatility premium"

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Chen, Long, Hui Guo, and Lu Zhang. Equity Market Volatility and Expected Risk Premium. Federal Reserve Bank of St. Louis, 2006. http://dx.doi.org/10.20955/wp.2006.007.

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Bekaert, Geert, and Marie Hoerova. The VIX, the Variance Premium and Stock Market Volatility. National Bureau of Economic Research, 2013. http://dx.doi.org/10.3386/w18995.

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Graham, John, and Campbell Harvey. Expectations of Equity Risk Premia, Volatility and Asymmetry from a Corporate Finance Perspective. National Bureau of Economic Research, 2001. http://dx.doi.org/10.3386/w8678.

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Santa-Clara, Pedro, and Shu Yan. Jump and Volatility Risk and Risk Premia: A New Model and Lessons from S&P 500 Options. National Bureau of Economic Research, 2004. http://dx.doi.org/10.3386/w10912.

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Carrasquilla-Barrera, Alberto, Arturo José Galindo-Andrade, Gerardo Hernández-Correa, et al. Report of the Board of Directors to the Congress of Colombia - July 2020. Banco de la República de Colombia, 2021. http://dx.doi.org/10.32468/inf-jun-dir-con-rep-eng.07-2020.

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In Colombia, as well as in the rest of the world, the Covid-19 pandemic has seriously damaged the health and well-being of the people. In order to limit the damage, local and national authorities have had to order large sectors of the population to be confined at their homes for long periods of time. An inevitable consequence of isolation has been the collapse of economic activity, expenditure, and employment, a phenomenon that has hit many countries of the world affected by the disease. It is an unprecedented crisis in modern times, not so much for its intensity (which is undoubtedly immense), but because its origin is not economic. That is what makes it so unpredictable and difficult to manage. Naturally, its economic consequences are enormous. Governments and central banks from all over the world are struggling to mitigate them, but the final solution is not in the hands of the economic authorities. Only science can provide a way out. In the meantime, the economic indicators in Colombia and in the rest of the world cause concern. The output falls, the massive loss of jobs, and the closure of businesses of all sizes have become daily news. Added to this, there is the deterioration in global financial conditions and the increase in the risk indicators. Financial volatility has increased and stock indexes have fallen. In the face of the lower global demand, export prices of raw materials have fallen, affecting the terms of trade for producing countries. Workers’ remittances have declined due to the increase of unemployment in developed countries. This crisis has also generated a strong reduction of global trade of goods and services, and effects on the global value chains. Central banks around the world have reacted decisively and quickly with strong liquidity injections and significant cuts to their interest rates. By mid-July, such determined response had succeeded to revert much of the initial deterioration in global financial conditions. The stock exchanges stopped their fall, and showed significant recovery in several countries. Risk premia, which at the beginning of the crisis took an unusual leap, recorded substantial corrections. Something similar happened with the volatility indexes of global financial markets, which exhibited significant improvement. Flexibilization of confinement measures in some economies, broad global liquidity, and fiscal policy measures have also contributed to improve global external financial conditions, albeit with indicators that still do not return to their pre-Covid levels.
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