Volatility Forecasting and Volatility Risk Premium

Jingfei  Cheng

doi:10.4236/jamp.2015.31014

Jingfei Cheng

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.

Keywords: Model-Free Implied Volatility, Volatility Forecasting, Volatility Risk Premium

Cite this paper: Cheng, J. (2015) Volatility Forecasting and Volatility Risk Premium. Journal of Applied Mathematics and Physics, 3, 98-102. doi: 10.4236/jamp.2015.31014.

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