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Variance risk in commodity markets

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  • Prokopczuk, Marcel
  • Symeonidis, Lazaros
  • Wese Simen, Chardin

Abstract

We analyze the variance risk of commodity markets. We construct synthetic variance swaps and find significantly negative realized variance swap payoffs in most markets. We find evidence of commonalities among the realized payoffs of commodity variance swaps. We also document comovements between the realized payoffs of commodity, equity and bond variance swaps. Similar results hold for expected variance swap payoffs. Furthermore, we show that both realized and expected commodity variance swap payoffs are distinct from the realized and expected commodity futures returns, indicating that variance risk is unspanned by commodity futures.

Suggested Citation

  • Prokopczuk, Marcel & Symeonidis, Lazaros & Wese Simen, Chardin, 2017. "Variance risk in commodity markets," Journal of Banking & Finance, Elsevier, vol. 81(C), pages 136-149.
    • Handle: RePEc:eee:jbfina:v:81:y:2017:i:c:p:136-149
    DOI: 10.1016/j.jbankfin.2017.05.003
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    More about this item

    Keywords

    Commodities; Variance risk premia; Variance swaps;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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