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Volatility Forecasting and Volatility Risk Premium

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http://www.scirp.org/journal/PaperInformation.aspx?PaperID=53601#.VMnrHizQrzE

Author(s)  
Jingfei Cheng

Affiliation(s)
Department of Finance, School of Economics, Shanghai University, Shanghai, China.

ABSTRACT
Volatility is an important variable in the financial market. We propose a model-free implied volatility method to measure the volatility and test the volatility risk premium. The model-free implied volatility does not depend on the option pricing model, and extracts information from all the option contracts. We provide empirical evidence from the S & P 500 index option that model-free implied volatility is more accurate to forecast the future volatility and the volatility risk premium does not exist.

KEYWORDS
Model-Free Implied Volatility, Volatility Forecasting, Volatility Risk Premium

Cite this paper
Cheng, J. (2015) Volatility Forecasting and Volatility Risk Premium. Journal of Applied Mathematics and Physics, 3, 98-102. doi: 10.4236/jamp.2015.31014.

References
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[3]Taylor, S.J. (1986) Modeling Financial Time Series. John Wiley & Sons, New York.
 
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[8]Britten-Jones, M. and Neuberger, A. (2000) Option Prices, Implied Price Processes, and Stochastic Volatility. Journal of Finance, 55, 839-866. http://dx.doi.org/10.1111/0022-1082.00228
 
[9]Jiang, G.J. and Tian, Y.S. (2005) The Model-Free Implied Volatility and Its Information Content. The Review of Financial Studies, 18, 1305-1342. http://dx.doi.org/10.1093/rfs/hhi027
 
[10]Jiang, G.J. and Tian, Y.S. (2007) Extracting Model-Free Volatility from Option Prices: An Examination of the VIX Index. Journal of Derivatives, 14. http://dx.doi.org/10.3905/jod.2007.681813               eww150129lx
 
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