The Study of Stocks′ Volatility Premium Based on Nonparametric Monte Carlo Simulation

Based on the analysis of stocks′ price behavior,the paper values the existence of stocks′ volatility premium regarded as an American style option and simulates the distribution characteristic of it with the nonparametric Monte Carlo simulation on the condition of an unchanged intrinsic value and stochastic volatility,that is,the volatility premium is influenced by factors including expected volatility rate,volatility rate of volatility,the speed of mean-reverting of volatility and the degree of the correlation between volatility process and price process.The conclusion is that,firstly,the expected mean volatility rate is the key factor of volatility premium,there exists positive correlation between them,which means that investors′ expected mean volatility will determine the level of volatility premium;secondly,there is positive correlation between volatility premium and the volatility rate of volatility,which mainly shows the possible risk of volatility premium under certain expected mean volatility level;thirdly,there is positive correlation between volatility premium and the speed of mean-reverting of volatility;fourthly,when the volatility process and price process are completely independent,the volatility premium gets the minimum value at the similar condition.