Simple Variance Swaps
نویسندگان
چکیده
The events of 2008-9 disrupted volatility derivatives markets and caused the singlename variance swap market to dry up completely; it has never recovered. This paper introduces the simple variance swap, a more robust relative of the variance swap that can be priced and hedged even if the underlying asset's price can jump, and constructs SVIX, an index based on simple variance swaps that measures market volatility. SVIX is consistently lower than VIX in the data, which rules out the possibility that the market return and stochastic discount factor are conditionally lognormal. The SVIX series implies a lower bound on the one-month equity premium that peaked at 55%, in annualized terms, at the height of the credit crisis. Friday, December 7, 2012, 10.30-12.00 Room 126, 1st floor of the Extranef building at the University of Lausanne Simple Variance Swaps
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