Rate fears gauges and the dynamics of fixed income and equity volatilities

Mele, Antonio; Obayashi, Yoshiki; Shalen, Catherine

doi:10.1016/j.jbankfin.2014.04.030

Cited by 28 publications

(17 citation statements)

References 20 publications

(13 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The premium is positive on average at 0.32bps, but turns negative in some parts of the sample and in particular during the crisis, as realized volatility turned out to be much higher than expected. This is consistent with other studies such as Mele et al (2015). In fact, during 2003In fact, during -2016 the correlation between our estimates and theirs is highly positive at 0.66.…”

Section: Variance Risk Premiasupporting

confidence: 92%

“…Extant studies also look at the variance risk premium in the equity and fixed-income market defined as the realized return to a variance swap contract (see e.g., Bollerslev et al (2009) and Mele et al (2015)). This is computed as the difference between the ex-ante expectation of the variance under the risk-adjusted measure and ex-post realized variance.…”

Section: Variance Risk Premiamentioning

confidence: 99%

See 1 more Smart Citation

Inflation Risk Premia, Yield Volatility, and Macro Factors

Berardi

Plazzi

2018

Journal of Financial Econometrics

View full text Add to dashboard Cite

We incorporate a latent stochastic volatility factor and macroeconomic expectations in an affine model for the term structure of nominal and real rates. We estimate the model over 1999–2016 on U.S. data for nominal and TIPS yields, the realized and implied volatility of T-bonds, and survey forecasts of GDP growth and inflation. We find relatively stable inflation risk premia averaging at 40 basis points at the long-end, and which are strongly related to the volatility factor and conditional mean of output growth. We also document real risk premia that turn negative in the post-crisis period, and a non-negligible variance risk premium.

show abstract

Section: Variance Risk Premiasupporting

confidence: 92%

Section: Variance Risk Premiamentioning

confidence: 99%

Inflation Risk Premia, Yield Volatility, and Macro Factors

Berardi

Plazzi

2018

Journal of Financial Econometrics

View full text Add to dashboard Cite

show abstract

Section: Variance Risk Premiamentioning

confidence: 99%

Inflation Risk Premia, Yield Volatility and Macro Factors

Berardi

Plazzi

2018

SSRN Journal

View full text Add to dashboard Cite

We incorporate a latent stochastic volatility factor and macroeconomic expectations in an affine model for the term structure of nominal and real rates. We estimate the model over 1999-2016 on U.S. data for nominal and TIPS yields, the realized and implied volatility of T-bonds and survey forecasts of GDP growth and inflation. We find relatively stable inflation risk premia averaging at 40bps at the long-end, and which are strongly related to the volatility factor and conditional mean of output growth. We also document real risk premia that turn negative in the post-crisis period, and a non-negligible variance risk premium.

show abstract

“…The change in VIX rises at a higher rate when the stock market is falling than if it is rising. Mele, Obayashi, and Shalen (2015) extend the analysis to the interest rate swap market. The authors establish stylized facts of SRVX, the swap rate volatility index, constructed similarly to VIX, based on interest rate swaptions.…”

Section: Introductionmentioning

confidence: 97%

Credit Variance Risk Premiums

Ammann

Mörke

2019

SSRN Journal

View full text Add to dashboard Cite

This paper studies variance risk premiums in the credit market. Using a novel data set of swaptions quotes on the CDX North America Investment Grade index, we find that returns of credit variance swaps are negative and economically large. Shorting variance swaps yields an annualized Sharpe ratio of almost six, eclipsing its counterpart in fixed income or equity markets. The returns remain highly statistically significant when accounting for transaction costs, cannot be explained by established risk-factors, and hold for various investment horizons. We also dissect the overall variance risk premium into payer and receiver variance risk premiums. We find that exposure to both parts is priced. However, the returns for payer variance, associated with bad economic states, are roughly twice as high in absolute terms.JEL classification: G12, G13.

show abstract

Rate fears gauges and the dynamics of fixed income and equity volatilities

Cited by 28 publications

References 20 publications

Inflation Risk Premia, Yield Volatility, and Macro Factors

Inflation Risk Premia, Yield Volatility, and Macro Factors

Inflation Risk Premia, Yield Volatility and Macro Factors

Credit Variance Risk Premiums

Contact Info

Product

Resources

About