RT Report
T1 Why do variance swaps exist?
A1 Nieto, Belén
A1 Novales Cinca, Alfonso
A1 Rubio, Gonzalo
AB 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 variancerisk 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 andmacroeconomic sources of risk. We provide additional evidence in support of that view.
PB Facultad de CC Económicas y Empresariales. Instituto Complutense de Análisis Económico
YR 2011
FD 2011-04
LK https://hdl.handle.net/20.500.14352/48981
UL https://hdl.handle.net/20.500.14352/48981
LA eng
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NO JEL classification: C13, C14, G10, G12
NO Ministerio de Ciencia e Innovación
NO Generalitat Valenciana
DS Docta Complutense
RD 7 dic 2023