@article{c1ba5d47dc8345df955e1b3dc019dedf,
title = "Term spreads of implied volatility smirk and variance risk premium",
abstract = "In this paper, we study the pattern of S&P 500 index options implied volatility (IV) curves and their predictive ability for the variance risk premium (VRP). We explore this predictability employing by the Zhang and Xiang IV factor estimation. We show that the level factor term spread significantly predicts the VRP, proxied by straddle returns and variance swap returns, in both in-sample and out-of-sample tests. The predictability is more pronounced for straddle returns rather than variance swap returns.",
keywords = "SPX options, implied volatility, prediction, term spread, variance risk premium",
author = "Wei Guo and Xinfeng Ruan and Gehricke, {Sebastian A.} and Zhang, {Jin E.}",
note = "Funding Information: We would like to acknowledge the helpful comments and suggestions from Bart Frijns (the editor) and an anonymous referee. Jin E. Zhang has been supported by an establishment grant from the University of Otago. Open access publishing facilitated by University of Otago, as part of the Wiley - University of Otago agreement via the Council of Australian University Librarians. Funding Information: We would like to acknowledge the helpful comments and suggestions from Bart Frijns (the editor) and an anonymous referee. Jin E. Zhang has been supported by an establishment grant from the University of Otago. Open access publishing facilitated by University of Otago, as part of the Wiley ‐ University of Otago agreement via the Council of Australian University Librarians. Publisher Copyright: {\textcopyright} 2023 The Authors. The Journal of Futures Markets published by Wiley Periodicals LLC.",
year = "2023",
month = jul,
doi = "10.1002/fut.22409",
language = "English",
volume = "43",
pages = "829--857",
journal = "Journal of Futures Markets",
issn = "0270-7314",
number = "7",
}