The Cross-Sectional Variation of Volatility Risk Premia

Macroeconomic Determinants of Stock Market Volatility and Volatility Risk-Premia∗

This paper introduces a no-arbitrage framework to assess how macroeconomic factors help explain the risk-premium agents require to bear the risk of fluctuations in stock market volatility. We develop a model in which return volatility is stochastic and derive no-arbitrage conditions linking volatility to macroeconomic factors. We estimate the model using data related to variance swaps, which ar...

Stochastic volatility of volatility and variance risk premia

This paper introduces a new class of stochastic volatility models which allows for stochastic volatility of volatility (SVV): Volatility modulated non–Gaussian Ornstein–Uhlenbeck (VMOU) processes. Various probabilistic properties of (integrated) VMOU processes are presented. Further we study the effect of the SVV on the leverage effect and on the presence of long memory. One of the key results ...

Option Implied Volatility Factors and the Cross-Section of Market Risk Premia

The main goal of this paper is to study market volatility risk premia. I develop a multifactor model by proposing a pricing kernel, where the market return, the diffusion volatility and the jump volatility are fundamental factors that change the investment opportunity set. Based on estimates of the diffusion and jump volatility factors using an enriched dataset including S&P500 index returns, i...

Decomposing Cross-Sectional Volatility

Volatility and Risk Premia: Lessons from the Eurodollar Markets

We estimate affine models using the Eurodollar futures and options data. The rationale for this exercise comes from a combination of recent theoretical and empirical work, which documents a trade-off in models abilities to match the expectations hypothesis and generate conditional volatility, and suggests to break this tight connection by explicitly removing volatility from the term structure d...