What Does the Volatility Risk Premium Say About Liquidity Provision and Demand for Hedging Tail Risk?
A 2013 paper by Fan, Imerman and Dai on market making in volatility and options, using classical time-series methods: the abstract does not mention a benchmark, an out-of-sample test, transaction costs, multiple testing or the size of the universe.
“We find compelling evidence that the magnitude of the deviation of the realized volatility from implied volatility represents supply and demand imbalances in the market for hedging tail risk.”
AssetVolatility and options
StrategyMarket makingliquidity premium
TechniqueClassical time series
FrequencyIntraday
Also stated: Price and volume, Options-implied
Missing from abstract: benchmark, out-of-sample test, costs, multiple testing, universe
Institutional-grade audit of this strategy.
£5 — Request the audit- Audit of the paper claims accounting for costs, luck, crises, originality, geography, etc.
- Reproduction code integratable into Bloomberg, IBKR, etc.
- Bias-free datasets for backtesting included
- Delivered in 2 working days
The paper's neighbourhoodMarket making by year
The family is counted across the whole universe. Asset, method and authors are counted inside the family.
| Similar papers | citation | same method | same asset | same authors | |
|---|---|---|---|---|---|
| How Does the Market Variance Risk Premium Vary Over Time? Evidence from S&P 500 Variance Swap Investment Returns by Konstantinidi and Skiadopoulos | 2014 | ||||
| Option Pricing on Automated Market Maker Tokens by Maymin | 2026 | ||||
| Feature Augmentations for High-Dimensional Learning by Zhu et al. | 2025 | ||||
| Limits to Market Making, Liquidation Risk and the Skewness Risk Premium in Options Markets by Ruf | 2012 | ||||
| Limits to Market Making and the Skewness Risk Premium in Options Markets by Ruf | 2012 |