The Volatility Risk Premium: An Empirical Study on the S&P 500 Index

59 Pages Posted: 24 Jan 2021

See all articles by Ivan Guo

Ivan Guo

Monash University - School of Mathematical Sciences

Gregoire Loeper

BNP Paribas; Monash University - School of Mathematical Sciences; Monash University - Monash Centre for Quantitative Finance and Investment Strategies; Ecole Polytechnique, Palaiseau - CMAP CNRS-UMR 7641 and Ecole Polytechnique

Date Written: November 30, 2020

Abstract

We perform an empirical analysis of trading strategies based on the systematic selling of delta hedged options, aiming at capturing the so-called volatility risk premium. We compare the performance across different strikes and maturities, and perform a breakdown of the drivers of performance. We also examine how such strategies can be combined to extract other premia related to the profile of the volatility surface, e.g. the skew and the term structure. In this first paper we focus on the S&P 500 index over the period 2010–2018.

Keywords: systematic strategies, derivatives, risk premium

JEL Classification: G11, G13, G14, C00

Suggested Citation

Guo, Ivan and Loeper, Gregoire, The Volatility Risk Premium: An Empirical Study on the S&P 500 Index (November 30, 2020). Available at SSRN: https://ssrn.com/abstract=3739933 or http://dx.doi.org/10.2139/ssrn.3739933

Ivan Guo

Monash University - School of Mathematical Sciences ( email )

Clayton Campus
Victoria, 3800
Australia

Gregoire Loeper (Contact Author)

BNP Paribas ( email )

Paris
France

Monash University - School of Mathematical Sciences ( email )

Clayton Campus
Victoria, 3800
Australia

Monash University - Monash Centre for Quantitative Finance and Investment Strategies ( email )

9 Rainforest Walk
Clayton Campus
Monash University, Victoria 3800
Australia

HOME PAGE: http://https://www.monash.edu/science/quantitative-finance

Ecole Polytechnique, Palaiseau - CMAP CNRS-UMR 7641 and Ecole Polytechnique ( email )

Route de Saclay
Palaiseau, 91128
France

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