Model-Free Discretisation-Invariant Swaps and S&P 500 Higher-Moment Risk Premia
Abstract
We derive a general multivariate theory for realised characteristics of `model-free discretisation-invariant swaps', so-called because the standard no-arbitrage assumption of martingale forward prices is sufficient to derive fair-value swap rates for such characteristics which have no jump or discretisation errors. This theory underpins specific examples for swaps based on higher moments of a single log return distribution where exact replication is possible via option-implied `fundamental contracts' like the log contact. The common factors determining the S&P 500 risk premia associated with these higher-moment characteristics are investigated empirically at the daily, weekly and monthly frequencies.
Keywords
Cite
@article{arxiv.1404.1351,
title = {Model-Free Discretisation-Invariant Swaps and S&P 500 Higher-Moment Risk Premia},
author = {Carol Alexander and Johannes Rauch},
journal= {arXiv preprint arXiv:1404.1351},
year = {2016}
}
Comments
This paper was divided and developed into two current papers: arXiv:1602.00235 and arXiv:1602.00865