Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/175217 
Year of Publication: 
2016
Series/Report no.: 
Working Paper No. 780
Publisher: 
Queen Mary University of London, School of Economics and Finance, London
Abstract: 
This paper studies the information content of the S&P 500 and VIX markets on the volatility of the S&P 500 returns. We estimate a flexible affine model based on a joint time series of underlying indexes and option prices on both markets. An extensive model specification analysis reveals that jumps and a stochastic level of reversion for the variance help reproduce risk-neutral distributions as well as the term structure of volatility smiles and of variance risk premia. We find that the S&P 500 and VIX derivatives prices are consistent in times of market calm but contain conflicting information on the variance during market distress.
Subjects: 
S&P 500 and VIX joint modeling
volatility dynamics
particle filter
variance risk premium
JEL: 
G12
G13
C58
Document Type: 
Working Paper

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