Economics, Econometrics and Finance
4 years ago

Options as insurance: Study reveals bond risk premium in emerging markets.

RePEc: Research Papers in Economics
Identifying Volatility Risk Premium from Fixed Income Asian Options
Caio Almeida, José Valentim Machado Vicente

Paper Summary

Related papers

Economics, Econometrics and Finance
4 years ago

Selling index options could lead to substantial returns for investors.

Option Pricing
Asset Pricing
Financial Volatility
Economics, Econometrics and Finance
4 years ago

Market volatility found to distort positive relationship between risk and return.

Option Pricing
1 view
Economics, Econometrics and Finance
4 years ago

New study reveals Asian options impact bond market risk premiums!

Option Pricing
Ageing Research
Insurance Dynamics

The article identifies volatility risk premium in Asian options by analyzing bond and option prices. The model used shows that the volatility risk premium is influenced by bond yields and option price trends. In a study with Brazilian local bonds and asian options, the model found a strong correlation between bond risk premium and an emerging markets index. It also revealed a negative volatility risk premium, suggesting investors use options as insurance in this market. The volatility premium explains a significant portion of bond premium, indicating the importance of options in understanding risk in term structure models.