IDEAS home Printed from https://ideas.repec.org/a/wly/jfutmk/v36y2016i5p488-505.html
   My bibliography  Save this article

Corridor Volatility Risk and Expected Returns

Author

Listed:
  • George Dotsis
  • Nikolaos Vlastakis

Abstract

This paper examines the pricing of volatility risk using SPX corridor implied volatility. We decompose model‐free implied volatility into various components using different segments of the cross‐section of out‐of‐the money put and call option prices. We find that only model‐free volatility computed from the cross‐section of out‐of‐the‐money call option prices carries a significant negative risk premium in the cross‐section of stock returns and subsumes all relevant information for forecasting future volatility. Our empirical results provide strong evidence that SPX out‐of‐the money put option prices do not contain useful information for pricing aggregate volatility risk in the cross‐section of stock returns. © 2015 Wiley Periodicals, Inc. Jrl Fut Mark 36:488–505, 2016

Suggested Citation

  • George Dotsis & Nikolaos Vlastakis, 2016. "Corridor Volatility Risk and Expected Returns," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(5), pages 488-505, May.
    • Handle: RePEc:wly:jfutmk:v:36:y:2016:i:5:p:488-505
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chen, Yu-Lun & Tsai, Wei-Che, 2017. "Determinants of price discovery in the VIX futures market," Journal of Empirical Finance, Elsevier, vol. 43(C), pages 59-73.
    2. Jiangze Du & Shaojie Lai & Kin Keung Lai & Shifei Zhou, 2021. "A novel term structure stochastic model with adaptive correlation for trend analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5485-5498, October.
    3. Shan Lu, 2019. "Testing the Predictive Ability of Corridor Implied Volatility Under GARCH Models," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 26(2), pages 129-168, June.
    4. Dudley Gilder & Leonidas Tsiaras, 2020. "Volatility forecasts embedded in the prices of crude‐oil options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(7), pages 1127-1159, July.
    5. Xingzhi Yao & Marwan Izzeldin, 2018. "Forecasting using alternative measures of model‐free option‐implied volatility," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(2), pages 199-218, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jfutmk:v:36:y:2016:i:5:p:488-505. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/0270-7314/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.