A0587
Title: Inferring volatility dynamics and risk premia from the S\& P 500 and VIX markets
Authors: Elise Gourier - ESSEC Business School (France) [presenting]
Markus Leippold - University of Zurich (Switzerland)
Chris Bardgett - University of Zurich (Switzerland)
Abstract: The information content of the S\& P 500 and VIX markets on the volatility of the S\& P 500 returns is studied. We estimate a flexible affine model based on a joint time series of underlying indexes and option prices on both markets. An extensive model specification analysis reveals that jumps and a stochastic level of reversion for the variance help reproduce risk-neutral distributions as well as the term structure of volatility smiles and of variance risk premia. We find that the S\& P 500 and VIX derivatives prices are consistent in times of market calm but contain conflicting information on the variance during market distress.
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