Unlocking Market Imbalances: How Volatility Risk Premium Impacts Tail Risk Hedging
The article analyzes the volatility risk premium by comparing actual and expected volatility in financial markets. By using high-frequency data and advanced analytics, the researchers found that the difference between these two measures reflects imbalances in the market for hedging against extreme events. The study suggests that the volatility risk premium can indicate potential gains or losses on a hedged portfolio, but it is less clear whether it predicts future volatility levels.