Model-Free Discretisation-Invariant Swaps and S&P 500 Higher-Moment Risk Premia
We derive a general multivariate theory for realised characteristics of `model-free discretisation-invariant swaps', so-called because the standard no-arbitrage assumption of martingale forward prices is sufficient to derive fair-value swap rates for such characteristics which have no jump or discretisation errors. This theory underpins specific examples for swaps based on higher moments of a single log return distribution where exact replication is possible via option-implied `fundamental contracts' like the log contact. The common factors determining the S&P 500 risk premia associated with these higher-moment characteristics are investigated empirically at the daily, weekly and monthly frequencies.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Anthony Neuberger, 2012. "Realized Skewness," Review of Financial Studies, Society for Financial Studies, vol. 25(11), pages 3423-3455.
- Galai, Dan, 1979. "A Proposal for Indexes for Traded Call Options," Journal of Finance, American Finance Association, vol. 34(5), pages 1157-1172, December.
- Matthias Fengler, 2009.
"Arbitrage-free smoothing of the implied volatility surface,"
Taylor & Francis Journals, vol. 9(4), pages 417-428.
- Matthias R. Fengler, 2005. "Arbitrage-Free Smoothing of the Implied Volatility Surface," SFB 649 Discussion Papers SFB649DP2005-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Breeden, Douglas T & Litzenberger, Robert H, 1978. "Prices of State-contingent Claims Implicit in Option Prices," The Journal of Business, University of Chicago Press, vol. 51(4), pages 621-651, October.
- Peter Carr & Liuren Wu, 2009. "Variance Risk Premiums," Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1311-1341, March.
- George J. Jiang & Yisong S. Tian, 2005. "The Model-Free Implied Volatility and Its Information Content," Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1305-1342.
- Peter Carr & Roger Lee, 2009. "Volatility Derivatives," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 319-339, November.
- Roman Kozhan & Anthony Neuberger & Paul Schneider, 2013. "The Skew Risk Premium in the Equity Index Market," Review of Financial Studies, Society for Financial Studies, vol. 26(9), pages 2174-2203.
- : Roman Kozhan & : Anthony Neuberger & : Paul Schneider, 2012. "The Skew Risk Premium in the Equity Index Market," Working Papers wpn12-08, Warwick Business School, Finance Group.
- Ian Martin, 2011. "Simple Variance Swaps," NBER Working Papers 16884, National Bureau of Economic Research, Inc.
- Robert Jarrow & Younes Kchia & Martin Larsson & Philip Protter, 2013. "Discretely sampled variance and volatility swaps versus their continuous approximations," Finance and Stochastics, Springer, vol. 17(2), pages 305-324, April.
- P. Carr & D. Madan, 2001. "Optimal positioning in derivative securities," Quantitative Finance, Taylor & Francis Journals, vol. 1(1), pages 19-37.
- Gurdip Bakshi & Nikunj Kapadia & Dilip Madan, 2003. "Stock Return Characteristics, Skew Laws, and the Differential Pricing of Individual Equity Options," Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 101-143. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1404.1351. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
If references are entirely missing, you can add them using this form.