1
$\begingroup$

I'm trying to come up with a measure for the volatility risk premium (VRP) for a strategy I want to implement, but I'm not entirely sure how to proceed. My situation is as follows.

  1. The underlying is a futures contract that expires yearly (December).

  2. There are four option contracts on this futures contract expiring quarterly (Mar, Jun, Sep, Dec).

I know that there are multiple ways to compute the VRP but I was hoping on getting some insight. One way I though of computing it is simply the difference between the front-quarter option Implied Volatility and the annualized future Realized Volatility until expiration of the appropriate front-option contract.

Could there be a better way or something that I'm missing?

$\endgroup$

0

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy