Mar 29, 2012

Volatility Risk Premium

Volatility risk premium is an important statistic for options traders. It is a single number that estimates premium that is priced in to the options due to volatility of volatility, or jumps. Jared Woodard wrote an excellent research brief on it Options and the Volatility Risk Premium  and I wrote earlier about VRP in stocks and VIX options. Below I compare realized volatility of different stock indexes with their implied volatility indexes, and find considerable dispersion in VRP values. Perhaps this is because there are slight differences in methods used for volatility indexes.


And same data in the raw table form.


Average Implied Volatility Index vs Realized Volatility for the last 5 years
Stock/Volatility Index Realized Implied VRP
NIFTY/INVIXN 30.3801 30.1993 0.10953
RTSI$/RTSVX 42.104 43.0253 -0.78427
RTY/RVX 33.5548 32.4393 0.73617
TOP40/SAVIT40 26.7024 27.2037 -0.2702
ASX/SPAVIX 24.7419 26.1983 -0.7419
DAX/V1X 27.0265 27.349 -0.17533
SX5E/V2X 28.2234 29.1638 -0.53966
SMI/V3X 22.3754 23.1146 -0.33629
AEX/VAEX 27.3087 27.2267 0.044695
CAC/VCAC 28.3253 27.245 0.60033
UKX/VFTSE 24.5219 25.0541 -0.26384
HSI/VHSI 32.7383 31.5557 0.76034
SPX/VIX 26.6402 25.9783 0.3483
SPTSX60/VIXC 15.7155 19.3213 -1.2634
KOSPI/VKOSPI 26.781 27.3645 -0.31593
NKY/VNKY 29.227 29.5678 -0.20037
INDU/VXD 24.1924 23.4958 0.33221
NDX/VXN 27.4897 27.3807 0.059849


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