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Asymmetric Volatility Risk : Evidence from Option Markets

Type of Publication: Journal article
Publication status: Published
Author: Jackwerth, Jens Carsten; Vilkov, Grigory
Year of publication: 2019
Published in: Review of Finance ; 23 (2019), 4. - pp. 777-799. - ISSN 1382-6662. - eISSN 1573-692X
DOI (citable link): https://dx.doi.org/10.1093/rof/rfy025
Summary:
Asymmetric volatility concerns the relation of returns to future expected volatility. Much is known from option prices about the marginal risk-neutral distributions (RNDs) of S&P 500 returns and of relative changes in future expected volatility (VIX). While the bivariate RND cannot be inferred from the marginals, we propose a novel identification based on long-dated index options. We estimate the risk-neutral asymmetric volatility implied correlation (AVIC) and find it to be significantly lower than its realized counterpart. We interpret the economics of the asymmetric volatility correlation risk premium and use AVIC to predict returns, volatility, and risk-neutral quantities.
Subject (DDC): 330 Economics
Keywords: Asymmetric volatility, VIX options, Volatility trading, Leverage effect, Risk-neutral distribution
Bibliography of Konstanz: Yes
Refereed: Yes

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JACKWERTH, Jens Carsten, Grigory VILKOV, 2019. Asymmetric Volatility Risk : Evidence from Option Markets. In: Review of Finance. 23(4), pp. 777-799. ISSN 1382-6662. eISSN 1573-692X. Available under: doi: 10.1093/rof/rfy025

@article{Jackwerth2019-07-01Asymm-47892, title={Asymmetric Volatility Risk : Evidence from Option Markets}, year={2019}, doi={10.1093/rof/rfy025}, number={4}, volume={23}, issn={1382-6662}, journal={Review of Finance}, pages={777--799}, author={Jackwerth, Jens Carsten and Vilkov, Grigory} }

Vilkov, Grigory Jackwerth, Jens Carsten 2019-07-01 eng Asymmetric Volatility Risk : Evidence from Option Markets Asymmetric volatility concerns the relation of returns to future expected volatility. Much is known from option prices about the marginal risk-neutral distributions (RNDs) of S&P 500 returns and of relative changes in future expected volatility (VIX). While the bivariate RND cannot be inferred from the marginals, we propose a novel identification based on long-dated index options. We estimate the risk-neutral asymmetric volatility implied correlation (AVIC) and find it to be significantly lower than its realized counterpart. We interpret the economics of the asymmetric volatility correlation risk premium and use AVIC to predict returns, volatility, and risk-neutral quantities. 2019-12-09T09:40:01Z Vilkov, Grigory Jackwerth, Jens Carsten 2019-12-09T09:40:01Z

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