Journal article
The term structure of the price of variance risk
- Abstract:
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We empirically investigate the term structure of variance risk pricing and how it varies over time. We estimate the aversion to variance risk in a stochastic-volatility option pricing model separately for options of different maturities and find that variance risk pricing decreases in absolute value with maturity but remains significantly different from zero up to the nine-month horizon. We find consistent non-parametric results using estimates from Sharpe ratios of delta-neutral straddles. We further show that the term structure is downward sloping both during normal times and in times of stress, when required compensation for variance risk increases and its term structure steepens further.
- Publication status:
- Published
- Peer review status:
- Peer reviewed
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- Files:
-
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(Preview, Accepted manuscript, pdf, 1.6MB, Terms of use)
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- Publisher copy:
- 10.1093/rof/rfaf029
Authors
- Publisher:
- Oxford University Press
- Journal:
- Review of Finance More from this journal
- Volume:
- 29
- Issue:
- 6
- Pages:
- 1699-1720
- Publication date:
- 2025-10-28
- Acceptance date:
- 2025-01-20
- DOI:
- EISSN:
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1573-692X
- ISSN:
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1572-3097
- Language:
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English
- Keywords:
- Pubs id:
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2338326
- Local pid:
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pubs:2338326
- Deposit date:
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2025-12-03
- ARK identifier:
Terms of use
- Copyright holder:
- Andries et al.
- Copyright date:
- 2025
- Rights statement:
- © The Author(s) 2025. Published by Oxford University Press on behalf of the European Finance Association. All rights reserved.
- Notes:
- The author accepted manuscript (AAM) of this paper has been made available under the University of Oxford's Open Access Publications Policy, and a CC BY public copyright licence has been applied.
- Licence:
- CC Attribution (CC BY)
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