Academic Seminar Series
Unpuzzling Volatility Risk Premiums through the Joint SPX/VIX Smile Calibration
João Pedro Vidal Nunes
Instituto Universitário de Lisboa
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Abstract
Several authors identify highly negative volatility risk premiums during periods of market stress. Without any assumptions on investors preferences and wealth, or on the distribution of returns, we document that no pricing kernel can justify those puzzling premiums and argue that such puzzle is a statistical flaw arising from the overdifferentiation of the volatility time-series. Alternatively, it is easy to replicate volatility risk premiums based on fractional (instead of integer) integration, but the pricing kernel only remains positive after using information from both SPX/VIX option markets. Hence, a new method for the joint SPX/VIX smile calibration is proposed.
Dr. João Pedro Vidal Nunes is a Full Professor at ISCTE – Instituto Universitário de Lisboa (Iscte Business School) at the Department of Finance. As an affiliated researcher with the Business Research Unit (BRU-Iscte), he actively contributes to the institution’s scientific and academic endeavors. Beyond his teaching and research, he has held significant institutional leadership positions, notably serving on the General Council of ISCTE. He earned his Ph.D. from the University of Warwick. Professor Nunes specializes in advanced financial modeling and quantitative finance. His extensive body of research delves into areas such as stochastic volatility models, jump tests in financial markets, options pricing, and the dynamics of energy futures markets. His scholarly work is widely recognized and has been published in notable peer-reviewed academic journals, including Journal of Financial and Quantitative Analysis and Mathematical Finance.
This seminar will be online on Teams. Click here to attend
