Volatility risk premium explained

In mathematical finance, the volatility risk premium [1] is a measure of the extra amount investors demand in order to hold a volatile security, above what can be computed based on expected returns.It can be defined as the compensation for inherent volatility risk divided by the volatility beta.[2]

References

  1. Jared Woodard (2011). Options and the Volatility Risk Premium. Financial Times Press. ASIN B004JN0UIQ
  2. Antoine Petrus Cornelius van der Ploeg (2006).Stochastic volatility and the pricing of financial derivatives. University of Amsterdam. page 256

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