Cookies?
Library Header Image
LSE Research Online LSE Library Services

When uncertainty blows in the orchard: comovement and equilibrium volatility risk premia

Vedolin, Andrea, Buraschi, Andrea and Trojani, Fabio (2014) When uncertainty blows in the orchard: comovement and equilibrium volatility risk premia. Journal of Finance, 69 (1). pp. 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
Library of Congress subject classification: H Social Sciences > HG Finance
Sets: Departments > Finance
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 30 Oct 2013 10:41
URL: http://eprints.lse.ac.uk/37440/

Actions (login required)

Record administration - authorised staff only Record administration - authorised staff only