Risk premia across asset markets: information from option prices

BIS Quarterly Review  | 
06 March 2006

A measure of risk premium is derived from the comparison of spot and option prices across the US equity and eurodollar markets. Risk premia in both markets co-move with volatility risk. Option prices, however, seem to underreact to changes in return volatility forecasts.

JEL classification: G120, G130, G140.