Abstract:
In this paper, we study whether investors demand the systematic component of the
volatility risk (VRP Beta) in the options market. We explore the possible determinants of the
systematic component of the volatility risk. Using stock options listed on the National Stock
exchange of India (NSE India), we report a strong existence of the systematic component of
volatility risk beta in the single stock options market, which is both statistically and
economically significant. The VRP Beta remains significant even in the presence of traditional
Fama-French risk factors and various other robustness checks. Further, VRP Beta is found to
be higher for stocks with relatively high tail risk and illiquid stocks and unrelated to size and
volatility of the stock.