RT Journal Article SR Electronic T1 Volatility-Decay Risk Premia JF The Journal of Derivatives FD Institutional Investor Journals SP 57 OP 70 DO 10.3905/jod.2014.22.1.057 VO 22 IS 1 A1 Dan Galai A1 Haim Kedar-Levy A1 Ben Z. Schreiber YR 2014 UL https://pm-research.com/content/22/1/57.abstract AB As our options models have gotten more realistic, but more complicated, there are more and more relevant risks that pose serious concerns for investors. Current models feature stochastic diffusive volatility, stochastic jumps of random magnitude to returns and/or volatility, with different effects for up and down jumps, and more. Empirical evidence shows that diffusive volatility goes up following a large jump, and then gradually reverts back to normal levels. However, investors don’t know how fast this will occur, so reversion uncertainty is another risk they face and for which they may require compensation. In this article, the authors explore such volatility decay risk premia using a clever technique based on time-spreads of delta and gamma-neutral straddles. They find a significant effect and show that it is tied to the occurrence of jumps and related to changes in the S&P 500 and the VIX.TOPICS: Options, quantitative methods