Variance Risk in Commodity Markets
46 Pages Posted: 4 Jan 2013 Last revised: 21 Mar 2019
Date Written: November 17, 2016
We analyze the variance risk of commodity markets. We construct synthetic variance swaps and find significantly negative realized and expected variance swap payoffs in most markets. We find evidence of commonalities among the realized payoffs of commodity variance swaps. We also document comovements between the realized payoffs of commodity and equity variance swaps. Furthermore, we show that realized commodity variance swap payoffs are distinct from the realized commodity futures returns, indicating that variance risk is unspanned by commodity futures.
Keywords: commodities, variance risk premia, variance swaps
JEL Classification: G12, G13
Suggested Citation: Suggested Citation