In this paper we propose a stochastic volatility model for crude oil markets that has the particularity to feature a regime-switching price of variance-risk. While preserving tractability, this model allows us to capture the episodes of negative and positive variance risk premium. A two-state...

Whether idiosyncratic volatility has increased over time and whether it is a good predictor of future returns is a matter of active debate. We show formally through central limit arguments that there is a direct relationship between the dynamics of the cross-sectional variance of realized...