Buraschi, Andrea, Trojani, Fabio and Vedolin, Andrea (2014) When uncertainty blows in the orchard:: comovement and equilibrium volatility risk premia. Journal of Finance, 69 (1). 101 - 137. ISSN 0022-1082
Full text not available from this repository.Abstract
We provide novel evidence for an equilibrium link between investors' disagreement, the market price of volatility and correlation, and the differential pricing of index and individual equity options. We show that belief disagreement is positively related to (i) the wedge between index and individual volatility risk premia, (ii) the different slope of the smile of index and individual options, and (iii) the correlation risk premium. Priced disagreement risk also explains returns of option volatility and correlation trading strategies in a way that is robust to the inclusion of other risk factors and different market conditions.
| Item Type: | Article |
|---|---|
| Official URL: | http://onlinelibrary.wiley.com/journal/10.1111/%28... |
| Additional Information: | © 2013 American Finance Association |
| Divisions: | Finance |
| Subjects: | H Social Sciences > HG Finance |
| Date Deposited: | 30 Oct 2013 10:41 |
| Last Modified: | 12 Dec 2024 00:32 |
| Projects: | NCCR FINRISK, 101312–103781/1, 100012–105745/1, PBSG1–119230 |
| Funders: | Swiss National Science Foundation, Swiss Finance Institute |
| URI: | http://eprints.lse.ac.uk/id/eprint/37440 |
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