Inferring Volatility Dynamics and Risk Premia from the S&P 500 and VIX markets

Chris Bardgett, Elise Gourier and Markus Leippold ()
Additional contact information
Chris Bardgett: University of Zurich and Swiss Finance Institute (SFI)
Elise Gourier: Queen Mary University of London

No 780, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: This paper studies the information content of the S&P 500 and VIX markets on the volatility of the S&P 500 returns. 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.

Keywords: S&P 500 and VIX joint modeling; Volatility dynamics; Particle filter; Variance risk premium (search for similar items in EconPapers)
JEL-codes: C58 G12 G13 (search for similar items in EconPapers)
Date: 2016-01-05
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Inferring volatility dynamics and risk premia from the S&P 500 and VIX markets (2019)
Working Paper: Inferring Volatility Dynamics and Risk Premia from the S&P 500 and VIX Markets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:qmw:qmwecw:780

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