Volatility risk premium

The persistent gap between implied volatility (what option buyers pay) and subsequently realised volatility (what markets deliver). Harvesting it is the insurance business of markets — steady premiums, occasional catastrophe. See the volatility page.

Where Volatility risk premium is explained in depth

The definition above is the short version. These pages put it to work, in the order they use it most:

• Hedging
• Equity Derivatives

Terms this definition uses

• Implied volatility
• Option
• Volatility

The whole glossary