Volatility Risk Premiums Implied By IVIX Index

In recent years,with the rise of the derivatives market and the development of mod-ern risk management,the original research on first-order risk sources such as liquidity risk,credit risk,and market risk can no longer meet market needs,emerging high-order moment risk sources such as volatility risk and correlation risk are increasingly being the focus of investors and regulators.Since the volatility risk has an impact on the price of financial assets,it has attracted attention since its appearance.The volatility risk premium is an important indicator to measure the existence and influence of volatility risk.It not only reflects the compensation required by investors for assuming volatility risk,but also reflects the degree of investor aversion to risk,and has gradually become today’s financial risk.Based on the stochastic volatility model with asset price jumps(SVJ model),this paper establishes an explicit transformed relationship between the China Volatility Index(iVIX)and the latent volatility,and directly uses the combined data of the SSE 50ETF price and the iVIX index to estimate the maximum likelihood of the parameters of the SVJ model.In the empirical part,the SVJ model under different parameter settings is selected through the likelihood ratio test method.Furthermore,the empirical characteristics of the SSE 50ETF market volatility risk premium(VRP)and the ability to predict market returns are studied.Empirical research shows that:(1)Compared with the classic square root SVJ model,the SVJ model with unconstrained elasticity value can better describe the process of market return and volatility;(2)The average value of the SSE 50ETF market is negative,and investors’ overall performance is risk-averse.It is worth mentioning that the degree of investors’ risk aversion has in-creased significantly during the stock market crash in 2015 and the COVID-19 outbreak in 2020;(3)VRP has a stable predictive ability for market yields and the predictive abil-ity is most convictive at six months.The research results of this article help investors to better understand the sources of market risk,and can provide investors with certain guidance and suggestions when making investment decisions and performing risk man-agement.