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Generating Returns through Volatility

Euan Sinclair

DOI: 10.1002/9781118662724.ch11 (Economics, Econometrics and Finance)
License: not stated (all rights reserved)

Abstract: The tendency of implied volatility to be higher than subsequent realized volatility is explored in this chapter. This is a consistent feature of equity indices but is usually not present in individual stock options. Evidence for other assets is mixed. The size of this effect is demonstrated by looking at the returns of short option portfolios. Plausible reasons for the effect are summarized.

Published on 25 Mar. 2013