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Is volatility risk priced in the KOSPI 200 index options market?

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  • Sun‐Joong Yoon
  • Suk Joon Byun

Abstract

The negative volatility risk premium is understood as a result for a hedging demand against market declines. Although this negative volatility risk premium is observed in most index options markets, there are some doubts about its presence in the KOSPI 200 index options market. The majority of KOSPI 200 index option holders do not possess any position in the underlying market; the composition of trading groups of the KOSPI 200 index options significantly differs from that of its underlying index; in this circumstance, the presence of a hedging demand is questionable. This study shows that volatility risk does not require a premium in the KOSPI 200 index options market. Rather, jump fears influence KOSPI 200 options. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29:797–825, 2009

Suggested Citation

  • Sun‐Joong Yoon & Suk Joon Byun, 2009. "Is volatility risk priced in the KOSPI 200 index options market?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 29(9), pages 797-825, September.
    • Handle: RePEc:wly:jfutmk:v:29:y:2009:i:9:p:797-825
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    Cited by:

    1. Sankar, Ganesh & Ramachandran, Shankar & Lukose P J, Jijo, 2020. "Dynamics of variance risk premium: Evidence from India," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 321-334.
    2. Liu, Qingfu & Hua, Renhai & An, Yunbi, 2016. "Determinants and information content of intraday bid-ask spreads: Evidence from Chinese commodity futures markets," Pacific-Basin Finance Journal, Elsevier, vol. 38(C), pages 135-148.

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