Jump and Volatility Risk Premiums Implied by VIX

An estimation method is developed for extracting the latent stochastic volatility from VIX, a volatility index for the SP (2) the jump and volatility risks are priced; (3) the popular square-root stochastic volatility process is a poor model specification irrespective of allowing for price jumps or not. Our simulation study shows that statistical inference is reliable and not materially affected by the approximation used in the VIX index construction.

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