Volatility of volatility and tail risk premiums
Yang-Ho Park – Federal Reserve Board

As a new measure of tail risk, we propose using the CBOE VVIX index which represents a model-free, risk-neutral measure of the volatility of volatility that is implied by the VIX options. The VVIX index has forecasting power for returns on tail risk hedging options such as S&P 500 puts and VIX calls. Specifically, the VVIX index raises the current prices of the tail risk hedging options and lowers their subsequent returns over the next three to four weeks.

I graduated from University of Colorado with a PhD in Finance in 2011. Since then, I have been working for the Federal Reserve Board as an economist. My main research interest lies in financial econometrics, asset pricing, and derivatives markets. Especially, these days, I am working on the VIX futures and options markets and margin requirements in the derivatives market. To know more…