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Variance Risk Premium Dynamics: The Impact of Asset Price Jumps on Variance Risk Premia

By Jackson Pfeiffer

This paper utilizes the high-frequency stock price data and the corresponding daily option price data of several highly capitalized corporations in order to investigate the impact that asset price jumps of individual equities have on the equities’ respective variance risk premia. The findings of this paper describe many characteristics of the variance risk premia of individual equities, supporting some expectations of the characteristics, and refuting others. In the process of investigating these characteristics, this paper proposes a simple estimator for the market price of the variance risk of an individual equity.

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Advisor: George Tauchen | JEL Codes:  G1, G19, G11 | Tagged: Variance Risk, Variance Swaps, Price Jumps

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