EconPapers    
Economics at your fingertips  
 

Risk‐Free Rates and Variance Futures Prices

Leonidas Rompolis ()

Journal of Futures Markets, 2016, vol. 36, issue 10, 943-967

Abstract: This paper investigates the relation between risk‐free rates and ex‐ante market volatility. It derives a theoretical model implying a negative linear relation between risk‐free rates and variance futures prices. The latter are employed as a direct market‐based ex‐ante estimate of risk‐neutral volatility. Empirical analysis, conducted using LIBOR and variance futures prices written on the S&P 500 index, indicates that the predictions of the model are supported by the data. The paper also provides evidence that, first, this negative relation varies smoothly over time following business cycles, and, second, the variance risk premium is a significant component of this documented relation. © 2015 Wiley Periodicals, Inc. Jrl Fut Mark 36:943–967, 2016

Date: 2016
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:jfutmk:v:36:y:2016:i:10:p:943-967

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-7314

Access Statistics for this article

Journal of Futures Markets is currently edited by Robert I. Webb

More articles in Journal of Futures Markets from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2020-08-27
Handle: RePEc:wly:jfutmk:v:36:y:2016:i:10:p:943-967