Abstract
Extant empirical evidence on volatility risk premium in emerging markets is limited to the market level index options. This study extends of understanding of volatility risk premium in single stock options in the Indian market. The study finds that volatility risk is priced systematically among the single stock options and the results are robust to alternative specifications of volatility and sampling frequencies. The study then examines the cross-sectional determinants of the systematic risk and finds that the options' systematic volatility risk is positively related to the hedging demand of tail risk and negatively associated with the options market liquidity.
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