Variance Risk Premiums of Commodity ETFs
We propose a model-independent method to account for the early exercise premiums in American options on non-dividend paying stocks. We find that our estimates of early exercise premium are generally larger than the estimates by existing methods. Given the American options on the Exchange-Traded Funds (ETFs) of gold, silver, natural gas, and crude oil, we find strong empirical evidence of variance risk premiums for these commodities, over a volatility term structure up to 18 months. Furthermore, we show that volatility indexes constructed by using existing methods tend to overestimate the risk-neutral variance, and consequently the magnitude of variance risk premium. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark
Finance and Financial Management
Finance; Quantitative Finance
Journal of Futures Markets
Wiley: 24 months
TEE, Chyng Wen and TING, Christopher.
Variance Risk Premiums of Commodity ETFs. (2016). Journal of Futures Markets. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/5020