This study employs a non-parametric approach to investigate the volatility risk premium in the over-the-counter currency option market. Using a large database of daily delta-neutral straddle quotes in four major currencies we find that volatility risk is priced in all four currencies across different option maturities. We find that the volatility risk premium is negative, with the premium decreasing in maturity. Finally, we also find evidence that jump risk may be priced in the currency option market.
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Volume (Year): 40 (2005) Issue (Month): 04 (December) Pages: 803-832 Download reference. The following formats are available: HTML
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