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Jump and variance risk premia in the S&P 500

Maximilian Neumann, Marcel Prokopczuk () and Chardin Wese Simen

Journal of Banking & Finance, 2016, vol. 69, issue C, 72-83

Abstract: We analyze the risk premia embedded in the S&P 500 spot index and option markets. We use a long time-series of spot prices and a large panel of option prices to jointly estimate the diffusive stock risk premium, the price jump risk premium, the diffusive variance risk premium and the variance jump risk premium. The risk premia are statistically and economically significant and move over time. Investigating the economic drivers of the risk premia, we are able to explain up to 63% of these variations.

Keywords: Equity risk premium; Jump risk premium; Variance risk premium; S&P 500; Options; Markov Chain Monte Carlo (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1016/j.jbankfin.2016.03.013

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Handle: RePEc:eee:jbfina:v:69:y:2016:i:c:p:72-83