RT Report
T1 Variance Swaps and Intertemporal Asset Pricing
A1 Nieto, Belén
A1 Novales Cinca, Alfonso Santiago
A1 Rubio, Gonzalo
AB This paper proposes an ICAPM in which the risk premium embedded in variance swaps is the factor mimicking portfolio for hedging exposure to changes in future investment conditions. Recent empirical evidence shows that the fears by investors to deviations from Normality in the distribution of returns are able to explain time-varying financial and macroeconomic risks in addition to being a determinant of the variance risk premium. Moreover, variance swaps hedges unfavorable changes in the stochastic investment opportunity set, and is not a redundant asset because significantly expands the efficient mean-variance frontier. Thence, we should expect the variance swap risk premium to be priced in the market. We report relatively favorable evidence on the incremental pricing information associated with the variance risk premium, particularlyat shorter horizons.
PB Facultad de CC Económicas y Empresariales. Instituto Complutense de Análisis Económico
YR 2011
FD 2011
LK https://hdl.handle.net/20.500.14352/48983
UL https://hdl.handle.net/20.500.14352/48983
LA eng
NO JEL classification: C13, C14, G10, G12.The authors thank seminar participants at the 33th Meeting of the European Accounting Association, the 8th INFINITI Conference on International Finance, and XVII Foro de Finanzas, IESE, and especially Enrique Sentana, for constructive comments.
NO Ministerio de Ciencia e Innovación
NO Generalitat Valenciana grant PROMETEO/2008/106
NO Programa Copernicus CEU-UCH/Banco de Santander
DS Docta Complutense
RD 10 abr 2025