This thesis uses synthetically created variance swaps on VIX futures to quantify the variance risk premium in VIX options. The results of this methodology suggest that the average premium is -3.26%, meaning that the realized variance on VIX futures is on average less than the variance implied by the swap rate. This premium does not vary with time or the level of the swap rate as much as premiums in other asset classes. A negative risk premium should mean that VIX option strategies that are net credit should be profitable. This thesis tests two simple net credit strategies with puts and calls, and finds that the call strategy is profitable while the put strategy is not.
| Identifer | oai:union.ndltd.org:CLAREMONT/oai:scholarship.claremont.edu:cmc_theses-1157 |
| Date | 01 January 2011 |
| Creators | Hogan, Reed M |
| Publisher | Scholarship @ Claremont |
| Source Sets | Claremont Colleges |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | CMC Senior Theses |
| Rights | © 2011 Reed Hogan |
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