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<p>This paper advances the estimation of the Variance Risk Premium by combining real-time market data with a structured calibration of volatility models for short-term maturities. The innovative procedure begins with spot volatility estimation under the physical measure using a Fourier Transform approach, which is then refined through a Large Deviation Principle–based calibration of implied volatility under the risk-neutral measure. We extend the analysis to VIX futures, variance swaps, and straddles with 7- and 30-day maturities, thereby offering a more granular perspective on short-term VRP dynamics. Our results underscore the central role of Heston model parameters—especially the volatility of volatility (<InlineEquation ID="IEq1"> <EquationSource Format="TEX">\(\sigma \)</EquationSource> </InlineEquation>) and the initial variance (<InlineEquation ID="IEq2"> <EquationSource Format="TEX">\(v_0\)</EquationSource> </InlineEquation>)—as key determinants of derivative returns. Despite the inherent noise in short-term markets, these structural factors exhibit robust statistical significance, distinguishing the variance risk premium from diffusive volatility. This study contributes to both derivative pricing and risk management practices, while enhancing the broader literature on volatility and risk premia.</p>

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Variance risk premia under volatility models

  • 期刊论文

  • 发表日期：

    2026年3月27日

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  • Chuan-Hsiang Han,
  • Kun Wang

摘要

This paper advances the estimation of the Variance Risk Premium by combining real-time market data with a structured calibration of volatility models for short-term maturities. The innovative procedure begins with spot volatility estimation under the physical measure using a Fourier Transform approach, which is then refined through a Large Deviation Principle–based calibration of implied volatility under the risk-neutral measure. We extend the analysis to VIX futures, variance swaps, and straddles with 7- and 30-day maturities, thereby offering a more granular perspective on short-term VRP dynamics. Our results underscore the central role of Heston model parameters—especially the volatility of volatility ( \(\sigma \) ) and the initial variance ( \(v_0\) )—as key determinants of derivative returns. Despite the inherent noise in short-term markets, these structural factors exhibit robust statistical significance, distinguishing the variance risk premium from diffusive volatility. This study contributes to both derivative pricing and risk management practices, while enhancing the broader literature on volatility and risk premia.