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Tails, Fears, and Risk Premia

Publication ,  Journal Article
Bollerslev, T; Todorov, V
Published in: Journal of Finance
December 1, 2011

We show that the compensation for rare events accounts for a large fraction of the average equity and variance risk premia. Exploiting the special structure of the jump tails and the pricing thereof, we identify and estimate a new Investor Fears index. The index reveals large time-varying compensation for fears of disasters. Our empirical investigations involve new extreme value theory approximations and high-frequency intraday data for estimating the expected jump tails under the statistical probability measure, and short maturity out-of-the-money options and new model-free implied variation measures for estimating the corresponding risk-neutral expectations. © 2011 the American Finance Association.

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Published In

Journal of Finance

DOI

EISSN

1540-6261

ISSN

0022-1082

Publication Date

December 1, 2011

Volume

66

Issue

6

Start / End Page

2165 / 2211

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
 

Citation

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Bollerslev, T., & Todorov, V. (2011). Tails, Fears, and Risk Premia. Journal of Finance, 66(6), 2165–2211. https://doi.org/10.1111/j.1540-6261.2011.01695.x
Bollerslev, T., and V. Todorov. “Tails, Fears, and Risk Premia.” Journal of Finance 66, no. 6 (December 1, 2011): 2165–2211. https://doi.org/10.1111/j.1540-6261.2011.01695.x.
Bollerslev T, Todorov V. Tails, Fears, and Risk Premia. Journal of Finance. 2011 Dec 1;66(6):2165–211.
Bollerslev, T., and V. Todorov. “Tails, Fears, and Risk Premia.” Journal of Finance, vol. 66, no. 6, Dec. 2011, pp. 2165–211. Scopus, doi:10.1111/j.1540-6261.2011.01695.x.
Bollerslev T, Todorov V. Tails, Fears, and Risk Premia. Journal of Finance. 2011 Dec 1;66(6):2165–2211.
Journal cover image

Published In

Journal of Finance

DOI

EISSN

1540-6261

ISSN

0022-1082

Publication Date

December 1, 2011

Volume

66

Issue

6

Start / End Page

2165 / 2211

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment