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The model-free measures and the volatility spread

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  • Jian Chen
  • Xiaoquan Liu

Abstract

In this article, we empirically investigate the relationship between realized and risk-neutral volatilities by applying the model-free measures to FTSE-100 index and index options from April 1992 to March 2005. Based on the deviation between the risk-neutral and the physical volatilities, we estimate the volatility spread through the Generalized Method of Moments (GMM) and reveal the volatility risk aversion.

Suggested Citation

  • Jian Chen & Xiaoquan Liu, 2010. "The model-free measures and the volatility spread," Applied Economics Letters, Taylor & Francis Journals, vol. 17(18), pages 1829-1833.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:18:p:1829-1833
    DOI: 10.1080/13504850903357350
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