##### Department of Mathematics,

University of California San Diego

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### Math 288 - Probability and Statistics

## Peter Carr

#### Bloomberg LP and Courant Institute

## Volatility replication and risk premia: theory and empirical evidence

##### Abstract:

A volatility derivative is a financial contract whose payoff depends on the realized volatility of some other asset. \vskip .1in \noindent The market for volatility derivatives is nascent but emerging. Recent theoretical breakthroughs have made it possible to robustly replicate the payoffs on a wide variety of volatility derivatives. We survey these developments and provide empirical evidence on the magnitude of the variance risk premium embedded in the prices of standard options.

Host: Pat Fitzsimmons

### March 17, 2005

### 9:00 AM

### AP&M 6438

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