Predicting the VIX and the Volatility Risk Premium: What's Credit and Commodity Volatility Risk Got to Do with It?

51 Pages Posted: 16 Oct 2014

See all articles by Elena Andreou

Elena Andreou

University of Cyprus - Department of Economics

Eric Ghysels

University of North Carolina Kenan-Flagler Business School; University of North Carolina (UNC) at Chapel Hill - Department of Economics

Date Written: October 14, 2014

Abstract

This paper presents an innovative approach to extracting factors which are shown to predict the VIX, the S&P 500 Realized Volatility and the Variance Risk Premium. The approach is innovative along two different dimensions, namely: (1) we extract factors from panels of filtered volatilities - in particular large panels of univariate financial asset ARCH-type models and (2) we price equity volatility risk using factors which go beyond the equity class. These are volatility factors extracted from panels of volatilities of short-term funding and long-run corporate spreads as well as volatilities of energy and metals commodities returns and sport/future spreads.

Keywords: Factor asset pricing models, ARCH filters

JEL Classification: C2, C5, G1

Suggested Citation

Andreou, Elena and Ghysels, Eric, Predicting the VIX and the Volatility Risk Premium: What's Credit and Commodity Volatility Risk Got to Do with It? (October 14, 2014). Available at SSRN: https://ssrn.com/abstract=2510196 or http://dx.doi.org/10.2139/ssrn.2510196

Elena Andreou

University of Cyprus - Department of Economics ( email )

75 Kallipoleos Street
P.O. Box 20537
1678 Nicosia
Cyprus
+357 2 892449 (Phone)
+357 2 892432 (Fax)

Eric Ghysels (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Gardner Hall, CB 3305
Chapel Hill, NC 27599
United States
919-966-5325 (Phone)
919-966-4986 (Fax)

HOME PAGE: http://https://eghysels.web.unc.edu/

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