Variance risk premiums and predictive power of alternative forward variances in the corn market.

Zhiguang Wang, Scott W. Fausti, Bashir A. Qasmi

Research output: Contribution to journalArticlepeer-review


We propose a fear index for corn using the variance swap rate synthesized from out‐of‐the‐money call and put options as a measure of implied variance. We find negative and time‐varying variance risk premiums (realized variance minus implied variance) in the corn market from 1987 to 2009. Our results contrast with Egelkraut, Garcia, and Sherrick (2007), but are in line with the findings of Simon (2002). We conclude that our synthesized model‐free implied variance estimation procedure contains superior information about future realized variance relative to traditional model‐dependent estimating procedures: the implied variance model by Black (1976) and the seasonal GARCH(1, 1) forecasted variance model.
Original languageAmerican English
JournalThe Journal of Futures Markets
StatePublished - Apr 2011
Externally publishedYes


  • Economics
  • Econometrics

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