TITLE:
Volatility Forecasting and Volatility Risk Premium
AUTHORS:
Jingfei Cheng
KEYWORDS:
Model-Free Implied Volatility, Volatility Forecasting, Volatility Risk Premium
JOURNAL NAME:
Journal of Applied Mathematics and Physics,
Vol.3 No.1,
January
28,
2015
ABSTRACT:
Volatility is an important variable in the
financial market. We propose a model-free implied volatility method to measure
the volatility and test the volatility risk premium. The model-free implied
volatility does not depend on the option pricing model, and extracts
information from all the option contracts. We provide empirical evidence from
the S & P 500 index option that model-free implied volatility is more
accurate to forecast the future volatility and the volatility risk premium does
not exist.