The Term Structure of Variance Swaps, Risk Premia and the Expectation Hypothesis

@inproceedings{AtSahalia2012TheTS,
  title={The Term Structure of Variance Swaps, Risk Premia and the Expectation Hypothesis},
  author={Yacine A{\"i}t-Sahalia and Mustafa Karaman and Loriano Mancini},
  year={2012}
}
  • Yacine Aït-Sahalia, Mustafa Karaman, Loriano Mancini
  • Published 2012
We study the term structure of variance swaps, which are popular volatility derivative contracts. A model-free analysis reveals a significant jump risk component embedded in variance swaps. The variance risk premium is negative and has a downward sloping term structure. Variance risk premia due to negative jumps present similar features in quiet times but have an upward sloping term structure in turbulent times. This suggests that shortterm variance risk premia mainly reflect investors’ fear of… CONTINUE READING

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Maximum-likelihood estimation of discretely-sampled di↵usions: A closed-form approximation approach

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