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3 posts on "Term Structure"
February 3, 2021

Equity Volatility Term Premia

Investors can buy volatility hedges on the stock market using variance swaps or VIX futures. One motivation for hedging volatility is its negative relationship with the stock market. When volatility increases, stock returns tend to decline contemporaneously, a result known as the leverage effect. In this post, we measure the cost of volatility hedging by decomposing the prices of variance swaps and VIX futures into volatility forecasts and estimates of expected returns (“equity volatility term premia”) from January 1996 to June 2020.

Posted at 7:00 am in Financial Markets | Permalink
February 1, 2021

The Law of One Price in Equity Volatility Markets

Can option traders take a square root? Surprisingly, maybe not. This post shows that VIX futures prices exhibit significant deviations from their option-implied upper bounds—the square root of variance swap forward rates—thus violating the law of one price, a fundamental concept in economics and finance. The deviations widen during periods of market stress and predict the returns of VIX futures. Just as the stock market struggles with multiplication, the equity volatility market appears unable to take a square root at times.

Posted at 7:00 am in Financial Markets | Permalink
May 8, 2013

Are Stocks Cheap? A Review of the Evidence

We surveyed banks, we combed the academic literature, we asked economists at central banks.

Posted at 7:00 am in Financial Markets, Stocks | Permalink | Comments (21)
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