Great article, appreciate you sharing these with the world. Do you have any pieces on vol risk premium? Research says it exists and is durable, but I'm curious how to explain it. Is it accurate to model it like other insurance products and thus sellers will only be incentivized to sell if they can make an economic return? Intuitively, it feels like the large institutions are always net buyers and are price-insensitive while the sellers are more tactical hedge fund, CTA types that don't sell without believing they have an edge.
I don't have a specific article about that and my own approach was always more cross sectional -- relative cheapness/expensiveness (and if anything my behavioral bias was to be net long options).
That said my inclination would be that VRP is probably some source of undiversifiable risk premia because of its relational properties to ERP plus some compensation for skewed returns.
But that's the domain of smart asset managers. I'm a dumb trader
Great article, appreciate you sharing these with the world. Do you have any pieces on vol risk premium? Research says it exists and is durable, but I'm curious how to explain it. Is it accurate to model it like other insurance products and thus sellers will only be incentivized to sell if they can make an economic return? Intuitively, it feels like the large institutions are always net buyers and are price-insensitive while the sellers are more tactical hedge fund, CTA types that don't sell without believing they have an edge.
I don't have a specific article about that and my own approach was always more cross sectional -- relative cheapness/expensiveness (and if anything my behavioral bias was to be net long options).
That said my inclination would be that VRP is probably some source of undiversifiable risk premia because of its relational properties to ERP plus some compensation for skewed returns.
But that's the domain of smart asset managers. I'm a dumb trader