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Volatility Risk Premium Across Different Asset Classes

Posted on July 15, 2024 By 
The volatility risk premium (VRP) is the compensation investors receive for bearing the risk associated with fluctuations in market volatility, typically measured as the difference between implied and realized volatility. The VRP in equities has been studied extensively. However, relatively little attention has been paid to the VRP in other …
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Implied Volatilities From a Behavioural Finance Perspective

Posted on July 11, 2024 By 
We have discussed at length the implied volatility and its relationships with realized volatility, volatility skew, dividend yield, and correlations. Moreover, it is interesting to examine implied volatility from a behavioural finance perspective. Reference studied the relationship between various countries’ implied volatilities and their cultural characteristics. Specifically, it utilized …
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Does Momentum Anomaly Really Exist?

Posted on July 7, 2024 By 
The momentum anomaly in the stock market refers to the phenomenon where stocks that have performed well in the past continue to perform well in the near future, and those that have performed poorly continue to underperform. Momentum strategies exploit this anomaly by buying stocks with high past returns and …
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Statistical Arbitrage in the Crude Oil Markets

Posted on June 29, 2024 By 
Statistical arbitrage is a classic trading strategy, invented in the 1980s. We mostly see it being applied in the equity markets, but statistical arbitrage is not limited to equities. It can be applied to other asset classes as well. Reference examined the statistical arbitrage strategy in the commodity markets, …
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Further on the Profitability of Pairs Trading

Posted on June 21, 2024 By 
Pairs trading is a market-neutral trading strategy that involves taking simultaneous long and short positions in two correlated stocks to profit from their relative price movements. There are recent research papers that argue that pairs trading is no longer profitable, especially when using traditional pairs selection methods. Reference , however, …
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Skewness Risk Premium in the Options Market

Posted on June 17, 2024 By 
Skewness of returns is a statistical measure that captures the asymmetry of the distribution of an asset’s returns over a specified period. It is particularly important in risk management and option pricing, where the skewness of returns can affect the valuation of derivatives and the construction of portfolios. Reference  …
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Retail Options Traders’ Behaviour

Posted on June 13, 2024 By 
Retail investors are individual, non-professional investors who buy and sell securities, such as stocks, options, and mutual funds, for their personal accounts rather than for an organization or institution. Unlike institutional investors, who manage large sums of money on behalf of clients or large entities, retail investors typically trade in …
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Modeling Short-term Implied Volatilities in the Heston Stochastic Volatility Model

Posted on June 9, 2024 By 
Stochastic volatility models, unlike constant volatility models, which assume a fixed level of volatility, allow volatility to change. These models, such as the Heston model, introduce an additional stochastic process to account for the variability in volatility, providing a more nuanced dynamics of the market. By incorporating factors like mean …
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