Delta-Hedged Gains and the Negative Market Volatility Risk Premium

By Gurdip Bakshi, Nikunj Kapadia. 2003

882 citations recorded by the source corpus.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/c7abf9008a69a45b0501f30f3c2a46c78098ad09

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Citations in the corpus

Liquidity Risk Premia in Corporate Bond Markets (2012, neutral): “Second, several empirical studies on equity index options provide evidence that volatility risk is priced (Bakshi and Kapadia (2003)).”
Jump Starting GARCH: Pricing and Hedging Options With Jumps in Returns and Volatilities (2006, neutral): “This result is consistent with that found by Bakshi and Kapadia (2001), who explained this finding by postulating a negative risk premium for volatility risk. Eraker (2001) found that while the inclusion of jumps in volatility improved the time series fit of the S&P 500 time series of returns, the b”
Model Specification and Risk Premia: Evidence from Futures Options (2007, background): “Coval and Shumway (2001) and Bakshi and Kapadia (2003) find large returns to delta-hedged option positions and use this to argue for a diffusive volatility risk premium.”
A tale of two option markets: Pricing kernels and volatility risk ☆ (2014, neutral): “, Bakshi and Kapadia (2003), Bollerslev et al. (2009), Carr and Wu (2009), and Todorov (2010), and compared them with measures of realized volatility.”
Forecasting Currency Volatility: A Comparison of Implied Volatilities and AR(FI)MA Models (2004, background): “More recently, Bakshi and Kapadia (2003) show that the volatility risk premium is negative for index options and consequently atthe-money implied volatilities are upward-biased forecasts for future volatilities.”
Extracting Model-Free Volatility from Option Prices: An Examination of the VIX Index (2007, background): “As pointed out by Bakshi and Kapadia [2003] and Carr and Wu [2004], a correctly estimated volatility risk premium is important for pricing and hedging derivative securities on underlying assets with stochastic volatility.”
Individual Stock-Option Prices and Credit Spreads (2008, neutral): “…information 1Evidence of priced jump and/or volatility risk is presented in, e.g., Ait-Sahalia, Wang and Yared (2001), Bakshi, Cao and Chen (1997), Bakshi and Kapadia (2003a, 2003b), Bakshi, Kapadia and Madan (2003), Bates (2003), Buraschi and Jackwerth (2001), Pan (2002), Topaloglou, Vladimirou…”
Realizing smiles: Options pricing with realized volatility (2013, neutral): “The presence of a substantial (negative) variance risk premium (especially in the S&P 500 Index) has been previously documented in the literature for example by Bakshi and Kapadia (2003) and Carr and Wu (2009).”
Option Strategies: Good Deals and Margin Calls (2009, neutral): “Jackwerth (2000), Coval and Shumway (2001), Bakshi and Kapadia (2003), Bondarenko (2003), Jones (2006), and Driessen and Maenhout (2007) find that strategies that involve writing put options on the S&P 500 index offer very high Sharpe ratios (‘‘good deals’’)— close to two on an annual basis for writ”
Downside Variance Risk Premium (2015, neutral): “This paper is related to the mounting literature on the properties of the V RP , as discussed in early works by Bakshi and Kapadia (2003), Vilkov (2008), and Carr and Wu (2009), among others.”
ANALYTICAL COMPARISONS OF OPTION PRICES IN STOCHASTIC VOLATILITY MODELS (2005, neutral): “Bakshi and Kapadia (2003) examined empirically the sign of the market price of volatility risk and found evidence that it is negative.”
Model Uncertainty and Option Markets with Heterogeneous Beliefs (2006, background): “Similarly, Bakshi and Kapadia (2003) study delta-hedged gains of European options and find evidence of a negative market volatility risk premium.”
The Skew Risk Premium in the Equity Index Market (2013, neutral): “The negative variance risk premium is consistent with the literature (see, for example, Bakshi and Kapadia 2003, Carr and Wu 2009, Egloﬀ et al. 2010).”
The Price of Correlation Risk: Evidence from Equity Options (2009, methodology): “The majority of the recent work on individual options focuses on Black–Scholes implied volatility functions (Bakshi and Kapadia (2003b), Bakshi et al. (2003), Bollen and Whaley (2004), Branger and Schlag (2004), Dennis and Mayhew (2002), Dennis et al.”