TY  - JOUR
AU  - Santa-Clara,Pedro
AU  - Yan,Shu
TI  - Jump and Volatility Risk and Risk Premia: A New Model and Lessons from S&P 500 Options
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10912
PY  - 2004
Y2  - November 2004
UR  - http://www.nber.org/papers/w10912
L1  - http://www.nber.org/papers/w10912.pdf
N1  - Author contact info:
Pedro Santa-Clara
Faculdade de Economia
Universidade Nova de Lisboa
Rua Marques de Fronteira, 20
1099-038 LISBOA
PORTUGAL
Tel: +351-91-493-4313
E-Mail: psc@fe.unl.pt

Shu Yan
Moore School of Business
Finance Department
University of South Carolina
1705 College Street
Columbia, SC 29208
Tel: 803/777-4925
E-Mail: syan@moore.sc.edu
AB  - We use a novel pricing model to filter times series of diffusive volatility and jump intensity from S&P 500 index options. These two measures capture the ex-ante risk assessed by investors. We find that both components of risk vary substantially over time, are quite persistent, and correlate with each other and with the stock index. Using a simple general equilibrium model with a representative investor, we translate the filtered measures of ex-ante risk into an  ex-ante risk premium. We find that the average premium that compensates the investor for the risks implicit in option prices, 10.1 percent, is about twice the premium required to compensate the same investor for the realized volatility, 5.8 percent. Moreover, the ex-ante equity premium that we uncover is highly volatile, with values between 2 and 32 percent. The component of the premium that corresponds to the jump risk varies between 0 and 12 percent.
ER  -