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The skew risk premium in the equity index market
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Kozhan, Roman, Neuberger, Anthony and Schneider, Paul (2013) The skew risk premium in the equity index market. Review of Financial Studies, Volume 26 (Number 9). pp. 2174-2203. doi:10.1093/rfs/hht039 ISSN 0893-9454.
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Official URL: http://dx.doi.org/10.1093/rfs/hht039
Abstract
We develop a new method for measuring moment risk premiums. We find that the skew premium accounts for over 40% of the slope in the implied volatility curve in the S&P 500 market. Skew risk is tightly related to variance risk, in the sense that strategies designed to capture the one and hedge out exposure to the other earn an insignificant risk premium. This provides a new testable restriction for asset pricing models trying to capture, in particular, disaster risk premiums. We base our results on a general trading strategy by replicating contracts that swap implied for realized conditional asset moments.
Item Type: | Journal Article | ||||||
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Subjects: | H Social Sciences > HG Finance | ||||||
Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Capital assets pricing model , Insurance premiums -- Finance , Risk-return relationships , Standard and Poor's corporation | ||||||
Journal or Publication Title: | Review of Financial Studies | ||||||
Publisher: | Oxford University Press | ||||||
ISSN: | 0893-9454 | ||||||
Official Date: | 2013 | ||||||
Dates: |
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Volume: | Volume 26 | ||||||
Number: | Number 9 | ||||||
Number of Pages: | 30 | ||||||
Page Range: | pp. 2174-2203 | ||||||
DOI: | 10.1093/rfs/hht039 | ||||||
Status: | Peer Reviewed | ||||||
Publication Status: | Published | ||||||
Access rights to Published version: | Restricted or Subscription Access |
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