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Variance Swaps and Intertemporal Asset Pricing


Nieto, Belén y Novales Cinca, Alfonso y Rubio, Gonzalo (2011) Variance Swaps and Intertemporal Asset Pricing. [ Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 08, 2011, ] (No publicado)

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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, particularly
at shorter horizons.

Tipo de documento:Documento de trabajo o Informe técnico
Información Adicional:

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.

Palabras clave:Variance risk premium, Intertemporal asset pricing
Materias:Ciencias Sociales > Economía > Econometría
Ciencias Sociales > Economía > Mercados bursátiles y financieros
Título de serie o colección:Documentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)
Código ID:12522

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Depositado:04 Abr 2011 09:13
Última Modificación:12 Mar 2014 10:55

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