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Article: The relation between physical and risk-neutral cumulants

TitleThe relation between physical and risk-neutral cumulants
Authors
Issue Date2013
PublisherBlackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/IRFI
Citation
International Review of Finance, 2013, v. 13 n. 3, p. 345-381 How to Cite?
AbstractVariance swaps are natural instruments for investors taking directional bets on volatility and are often used for portfolio protection. The empirical observation on skewness research suggests that derivative professionals may also desire to hedge beyond volatility risk and there exists the need to hedge higher-moment market risks, such as skewness and kurtosis risks. We study two derivative contracts - skewness swap and kurtosis swap - which trade the forward realized third and fourth cumulants. Using S&P 500 index options data from 1996 to 2005, we document the returns of these swap contracts, i.e., skewness risk premium and kurtosis risk premium. We find that the both skewness and kurtosis risk premiums are significantly negative.
Persistent Identifierhttp://hdl.handle.net/10722/191986
ISSN
2015 Impact Factor: 0.595
2015 SCImago Journal Rankings: 1.493
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorZhao, Hen_US
dc.contributor.authorZhang, JEen_US
dc.contributor.authorChang, ECen_US
dc.date.accessioned2013-10-15T07:45:02Z-
dc.date.available2013-10-15T07:45:02Z-
dc.date.issued2013en_US
dc.identifier.citationInternational Review of Finance, 2013, v. 13 n. 3, p. 345-381en_US
dc.identifier.issn1369-412X-
dc.identifier.urihttp://hdl.handle.net/10722/191986-
dc.description.abstractVariance swaps are natural instruments for investors taking directional bets on volatility and are often used for portfolio protection. The empirical observation on skewness research suggests that derivative professionals may also desire to hedge beyond volatility risk and there exists the need to hedge higher-moment market risks, such as skewness and kurtosis risks. We study two derivative contracts - skewness swap and kurtosis swap - which trade the forward realized third and fourth cumulants. Using S&P 500 index options data from 1996 to 2005, we document the returns of these swap contracts, i.e., skewness risk premium and kurtosis risk premium. We find that the both skewness and kurtosis risk premiums are significantly negative.-
dc.languageengen_US
dc.publisherBlackwell Publishing Ltd. The Journal's web site is located at http://www.blackwellpublishing.com/journals/IRFI-
dc.relation.ispartofInternational Review of Financeen_US
dc.rightsThe definitive version is available at www.blackwell-synergy.com-
dc.titleThe relation between physical and risk-neutral cumulantsen_US
dc.typeArticleen_US
dc.identifier.emailZhao, H: hmzhao@hku.hken_US
dc.identifier.emailChang, EC: ecchang@business.hku.hken_US
dc.identifier.authorityChang, EC=rp01050en_US
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1111/irfi.12013-
dc.identifier.scopuseid_2-s2.0-84883333581-
dc.identifier.hkuros226397en_US
dc.identifier.volume13en_US
dc.identifier.issue3en_US
dc.identifier.spage345en_US
dc.identifier.epage381en_US
dc.identifier.isiWOS:000329442500004-
dc.publisher.placeUnited Kingdom-

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