Variance Risk in Commodity Markets

46 Pages Posted: 4 Jan 2013 Last revised: 21 Mar 2019

See all articles by Marcel Prokopczuk

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management; University of Reading - ICMA Centre

Lazaros Symeonidis

Essex Business School, University of Essex

Chardin Wese Simen

University of Liverpool Management School

Date Written: November 17, 2016

Abstract

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

Prokopczuk, Marcel and Symeonidis, Lazaros and Wese Simen, Chardin, Variance Risk in Commodity Markets (November 17, 2016). Journal of Banking and Finance, Vol. 81, 2017, Available at SSRN: https://ssrn.com/abstract=2195691 or http://dx.doi.org/10.2139/ssrn.2195691

Marcel Prokopczuk

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Lazaros Symeonidis

Essex Business School, University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Chardin Wese Simen (Contact Author)

University of Liverpool Management School ( email )

Management School
University of Liverpool
Liverpool, L69 7ZH
United Kingdom

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