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Risk premia across asset markets: information from option prices

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  • Nikola Tarashev
  • Kostas Tsatsaronis

Abstract

A measure of risk premium is derived from the comparison of spot and option prices across the US equity and eurodollar markets. Risk premia in both markets co-move with volatility risk. Option prices, however, seem to underreact to changes in return volatility forecasts.

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Bibliographic Info

Article provided by Bank for International Settlements in its journal BIS Quarterly Review.

Volume (Year): (2006)
Issue (Month): (March)
Pages:

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Handle: RePEc:bis:bisqtr:0603h

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  1. Miroslav Misina, 2005. "Risk Perceptions and Attitudes," Working Papers 05-17, Bank of Canada.
  2. Jeffery D Amato, 2005. "Risk aversion and risk premia in the CDS market," BIS Quarterly Review, Bank for International Settlements, December.
  3. Lawrence R. Glosten & Ravi Jagannathan & David E. Runkle, 1993. "On the relation between the expected value and the volatility of the nominal excess return on stocks," Staff Report 157, Federal Reserve Bank of Minneapolis.
  4. Joshua Rosenberg & Robert F. Engle, 2000. "Empirical Pricing Kernels," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-014, New York University, Leonard N. Stern School of Business-.
  5. Fabio Fornari, 2005. "The rise and fall of US dollar interest rate volatility: evidence from swaptions," BIS Quarterly Review, Bank for International Settlements, September.
  6. Barone-Adesi, Giovanni & Whaley, Robert E, 1987. " Efficient Analytic Approximation of American Option Values," Journal of Finance, American Finance Association, vol. 42(2), pages 301-20, June.
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Cited by:
  1. Masazumi Hattori & Andreas Schrimpf & Vladyslav Sushko, 2013. "The response of tail risk perceptions to unconventional monetary policy," BIS Working Papers 425, Bank for International Settlements.

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