Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/23401
Authors: 
Branger, Nicole
Schlag, Christian
Year of Publication: 
2004
Series/Report no.: 
Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting 136
Abstract: 
Tests for the existence and the sign of the volatility risk premium are often based on expected option hedging errors. When the hedge is performed under the ideal conditions of continuous trading and correct model specification, the sign of the premium is the same as the sign of the mean hedging error for a large class of stochastic volatility option pricing models. We show, however, that the problems of discrete trading and model mis-specification, which are necessarily present in any empirical study, may cause the standard test to yield unreliable results.
Subjects: 
Stochastic Volatility
Volatility Risk Premium
Discretization Error
Model Error
JEL: 
G12
G13
Document Type: 
Working Paper

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