We decompose total variance into its bad and good components and measure the premia associated with their fluctuations using stock and option data from a large cross-section of firms. The total variance risk premium (VRP) represents the premium paid to insure against fluctuations in bad variance...

Advances in variance analysis permit the splitting of the total quadratic variation of a jump diffusion process into upside and downside components. Recent studies establish that this decomposition enhances volatility predictions, and highlight the upside/downside variance spread as a driver of...

We introduce the Homoscedastic Gamma [HG] model where the distribution of returns is characterized by its mean, variance and an independent skewness parameter under both measures. The model predicts that the spread between historical and risk-neutral volatilities is a function of the risk...

We build a small-scale representation of an economy in which the short rate, inflation and output exhibit unobserved secular and cyclical components that both drive bond yields. We impose the economic restriction that expected bond returns are purely cyclical so that their variance does not...

Advances in variance analysis permit the splitting of the total quadratic variation of a jump-diffusion process into upside and downside components. Recent studies establish that this decomposition enhances volatility predictions, and highlight the upside/downside variance spread as a driver of...

We decompose the quadratic payoff on a stock into its loss and gain components and measure the premia associated with their fluctuations, called the loss and gain quadratic risk premium (QRP) respectively. The loss QRP interprets as the premium paid for downside risk hedging, while the gain QRP...

We decompose the quadratic payoff on a stock into its loss and gain components and measure the premia associated with their fluctuations, called the loss and gain quadratic risk premium (QRP) respectively. The loss QRP interprets as the premium paid for downside risk hedging, while the gain QRP...

Many studies have documented that daily realized volatility estimates based on intraday returns provide volatility forecasts that are superior to forecasts constructed from daily returns only. We investigate whether these forecasting improvements translate into economic value added. To do so we...