Why do variance swaps exist?

This paper studies the determinants of the variance risk premium and concludes on the hedging possibilities offered by variance swaps. We start by showing that the variance risk premium responds to changes in higher order moments of the distribution of market returns. But the uncertainty that determ...

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Detalles Bibliográficos
Autores: Nieto, Belén, Novales Cinca, Alfonso Santiago, Rubio, Gonzalo
Tipo de recurso: informe técnico
Fecha de publicación:2011
País:España
Institución:Universidad Complutense de Madrid (UCM)
Repositorio:Docta Complutense
Idioma:inglés
OAI Identifier:oai:docta.ucm.es:20.500.14352/48981
Acceso en línea:https://hdl.handle.net/20.500.14352/48981
Access Level:acceso abierto
Palabra clave:Variance risk premium
Non-normality
Economic risks
Hedging
Econometría (Economía)
Macroeconomía
5302 Econometría
5307.14 Teoría Macroeconómica
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repository_id_str
spelling Why do variance swaps exist?Nieto, BelénNovales Cinca, Alfonso SantiagoRubio, GonzaloVariance risk premiumNon-normalityEconomic risksHedgingEconometría (Economía)Macroeconomía5302 Econometría5307.14 Teoría MacroeconómicaThis paper studies the determinants of the variance risk premium and concludes on the hedging possibilities offered by variance swaps. We start by showing that the variance risk premium responds to changes in higher order moments of the distribution of market returns. But the uncertainty that determines the variance risk premium –the fear by investors to deviations from Normality in returns- is also strongly related to a variety of risks: risk of default, employment growth risk, consumption growth risk, stock market risk and market illiquidity risk. Therefore, the variance risk premium could be interpreted as reflecting the market willingness to pay for hedging against financial and macroeconomic sources of risk. We provide additional evidence in support of that view.Facultad de CC Económicas y Empresariales. Instituto Complutense de Análisis EconómicoUniversidad Complutense de Madrid20112011-01-0120112011-01-01technical reporthttp://purl.org/coar/resource_type/c_18ghinfo:eu-repo/semantics/reportapplication/pdfhttps://hdl.handle.net/20.500.14352/48981reponame:Docta Complutenseinstname:Universidad Complutense de Madrid (UCM)Inglésengopen accesshttp://purl.org/coar/access_right/c_abf2Atribución-NoComercial 3.0 Españahttps://creativecommons.org/licenses/by-nc/3.0/es/info:eu-repo/semantics/openAccessoai:docta.ucm.es:20.500.14352/489812026-06-02T12:44:21Z
dc.title.none.fl_str_mv Why do variance swaps exist?
title Why do variance swaps exist?
spellingShingle Why do variance swaps exist?
Nieto, Belén
Variance risk premium
Non-normality
Economic risks
Hedging
Econometría (Economía)
Macroeconomía
5302 Econometría
5307.14 Teoría Macroeconómica
title_short Why do variance swaps exist?
title_full Why do variance swaps exist?
title_fullStr Why do variance swaps exist?
title_full_unstemmed Why do variance swaps exist?
title_sort Why do variance swaps exist?
dc.creator.none.fl_str_mv Nieto, Belén
Novales Cinca, Alfonso Santiago
Rubio, Gonzalo
author Nieto, Belén
author_facet Nieto, Belén
Novales Cinca, Alfonso Santiago
Rubio, Gonzalo
author_role author
author2 Novales Cinca, Alfonso Santiago
Rubio, Gonzalo
author2_role author
author
dc.contributor.none.fl_str_mv Universidad Complutense de Madrid
dc.subject.none.fl_str_mv Variance risk premium
Non-normality
Economic risks
Hedging
Econometría (Economía)
Macroeconomía
5302 Econometría
5307.14 Teoría Macroeconómica
topic Variance risk premium
Non-normality
Economic risks
Hedging
Econometría (Economía)
Macroeconomía
5302 Econometría
5307.14 Teoría Macroeconómica
description This paper studies the determinants of the variance risk premium and concludes on the hedging possibilities offered by variance swaps. We start by showing that the variance risk premium responds to changes in higher order moments of the distribution of market returns. But the uncertainty that determines the variance risk premium –the fear by investors to deviations from Normality in returns- is also strongly related to a variety of risks: risk of default, employment growth risk, consumption growth risk, stock market risk and market illiquidity risk. Therefore, the variance risk premium could be interpreted as reflecting the market willingness to pay for hedging against financial and macroeconomic sources of risk. We provide additional evidence in support of that view.
publishDate 2011
dc.date.none.fl_str_mv 2011
2011-01-01
2011
2011-01-01
dc.type.none.fl_str_mv technical report
http://purl.org/coar/resource_type/c_18gh
dc.type.openaire.fl_str_mv info:eu-repo/semantics/report
format report
dc.identifier.none.fl_str_mv https://hdl.handle.net/20.500.14352/48981
url https://hdl.handle.net/20.500.14352/48981
dc.language.none.fl_str_mv Inglés
eng
language_invalid_str_mv Inglés
language eng
dc.rights.none.fl_str_mv open access
http://purl.org/coar/access_right/c_abf2
Atribución-NoComercial 3.0 España
https://creativecommons.org/licenses/by-nc/3.0/es/
dc.rights.openaire.fl_str_mv info:eu-repo/semantics/openAccess
rights_invalid_str_mv open access
http://purl.org/coar/access_right/c_abf2
Atribución-NoComercial 3.0 España
https://creativecommons.org/licenses/by-nc/3.0/es/
eu_rights_str_mv openAccess
dc.format.none.fl_str_mv application/pdf
dc.publisher.none.fl_str_mv Facultad de CC Económicas y Empresariales. Instituto Complutense de Análisis Económico
publisher.none.fl_str_mv Facultad de CC Económicas y Empresariales. Instituto Complutense de Análisis Económico
dc.source.none.fl_str_mv reponame:Docta Complutense
instname:Universidad Complutense de Madrid (UCM)
instname_str Universidad Complutense de Madrid (UCM)
reponame_str Docta Complutense
collection Docta Complutense
repository.name.fl_str_mv
repository.mail.fl_str_mv
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score 15,812429

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