Abstract
Using a relatively model-free approach to extract the risk-neutral expected variance from an extensive set of traded options on 29 single stocks and eight stock indices, I derive the variance risk premium defined as the difference between the actually realized variance and the expected variance under the risk-neutral measure. The analysis reveals that variance risk premia are persistently negative for the majority of underlyings and show a clear link to the underlying’s exposure to systematic market variance. Moreover, I find that both the risk associated with continuous as well as discontinuous price movements contribute to observed variance risk premia. Keywords: Variance risk premium, Volatility premium, Jumps, Risk-neutral, Model-free
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