Quantile Risk Premiums

49 Pages Posted: 30 Nov 2020 Last revised: 13 May 2021

See all articles by Felix Brinkmann

Felix Brinkmann

University of Goettingen (Göttingen)

Julian Dörries

University of Goettingen (Göttingen)

Olaf Korn

University of Goettingen (Göttingen)

Date Written: May 7, 2021

Abstract

This paper studies quantile-based moment premiums. The quantile-based approach delivers robust and flexible alternatives to premiums for variance, skewness and kurtosis risk and enhances our understanding of the pricing of risks in derivatives markets. To quantify these premiums, the paper introduces a new class of synthetic derivatives contracts: quantile swaps. Such contracts mimic quantile-based moment measures from robust statistics. An empirical study of index options detects two distinct premiums for dispersion and asymmetry, but no premium for steepness. The premium for dispersion can be explained by traditional moment risk premiums, whereas the asymmetry premium is a novel premium that our approach is able to detect. This finding contrasts markedly with results obtained with traditional moment swaps, and warns us to interpret moment premiums cautiously.

Keywords: Quantiles, Moment Swaps, Risk Premiums

JEL Classification: G10, G12, G13

Suggested Citation

Brinkmann, Felix and Dörries, Julian and Korn, Olaf, Quantile Risk Premiums (May 7, 2021). Available at SSRN: https://ssrn.com/abstract=3706678 or http://dx.doi.org/10.2139/ssrn.3706678

Felix Brinkmann

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Julian Dörries (Contact Author)

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Olaf Korn

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany
++49 551 39 7265 (Phone)
++49 551 39 7665 (Fax)

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