The Skew Risk Premium in Index Option Prices

• DOI: 10.2139/ssrn.1571700
• Publication Date: 2012-01-04T18:41:45Z
• Authors: Roman Kozhan; Anthony Neuberger; Paul Georg Schneider
• Keywords: Variance swap; Variance risk premium; Volatility risk; Interest rate swap; Hedge

We measure the skew risk premium in equity index market through swap. argue that just as variance swaps can be used to explore relationship between implied option prices and realized variance, so too volatility skew. Like swap, swap corresponds a trading strategy, necessary assess premia model-free way. find almost half of explained by premium. provide evidence are manifestations same underlying factor sense strategies designed exploit one but hedge out other make zero excess returns.