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Volatility Forecasting and Volatility Risk Premium

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DOI: 10.4236/jamp.2015.31014    5,539 Downloads   6,300 Views   Citations
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ABSTRACT

Volatility is an important variable in the financial market. We propose a model-free implied volatility method to measure the volatility and test the volatility risk premium. The model-free implied volatility does not depend on the option pricing model, and extracts information from all the option contracts. We provide empirical evidence from the S & P 500 index option that model-free implied volatility is more accurate to forecast the future volatility and the volatility risk premium does not exist.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

Cheng, J. (2015) Volatility Forecasting and Volatility Risk Premium. Journal of Applied Mathematics and Physics, 3, 98-102. doi: 10.4236/jamp.2015.31014.

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