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Report
The term structure of the price of variance risk
We empirically investigate the term structure of variance risk pricing and how it varies over time. We estimate the aversion to variance risk in a stochastic-volatility option pricing model separately for options of different maturities and find that variance risk pricing decreases in absolute value with maturity but remains significantly different from zero up to the nine-month horizon. We find consistent non-parametric results using estimates from Sharpe ratios of delta-neutral straddles. We further show that the term structure is downward sloping both during normal times and in times of ...
Working Paper
Are Equity Option Returns Abnormal? IPCA Says No
We show that much of the profitability in equity option return strategies, which try to capture option mispricing by taking exposure to underlying volatility, can be explained by an IPCA model. The alpha reduction, relative to competing static factor models, is between 50% and 75% depending on the computing model and the type of option position.