“Predicting the VIX and the Volatility Risk Premium: What’s Credit and Commodity Volatility Risk Got to Do with It” by Eric Ghysels
Finance Seminar
Author:
Eric Ghysels
University of North Carolina at Chapel HillElena Andreou
University of Cyprus
This paper presents an innovative approach to extracting factors which are shown to predict the VIX, the S&P 500 Realized Volatility and the Variance Risk Premium. The approach is innovative along two different dimensions, namely: (1) we extract factors from panels of filtered volatilities – in particular large panels of univariate financial asset ARCH-type models and (2) we price equity volatility risk using factors which go beyond the equity class. These are volatility factors extracted from panels of volatilities of short-term funding and long-run corporate spreads as well as volatilities of energy and metals commodities returns and sport/future spreads.
