Publication Type
Journal Article
Version
submittedVersion
Publication Date
5-2017
Abstract
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.
Discipline
Finance and Financial Management
Research Areas
Finance; Quantitative Finance
Publication
Journal of Futures Markets
Volume
37
Issue
5
First Page
452
Last Page
472
ISSN
0270-7314
Identifier
10.1002/fut.21802
Publisher
Wiley: 24 months
Citation
TEE, Chyng Wen and TING, Christopher H. A..
Variance risk premiums of commodity ETFs. (2017). Journal of Futures Markets. 37, (5), 452-472.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5020
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1002/fut.21802