Variance Risk Premium
Variance Risk Premium — Gap between implied and realized volatility that systematic vol sellers harvest.
Definition
Variance Risk Premium refers to gap between implied and realized volatility that systematic vol sellers harvest. Keep that definition fixed when comparing series, managers, or regimes — renaming the same tape does not create a new signal.
Why it matters
Options and futures embed views on vol, skew, and path that cash markets only hint at. When gap between implied and realized volatility that systematic vol sellers harvest shifts, related hedges, limits, and narratives usually need an explicit update rather than a quiet assumption.
Case
Suppose a desk is positioned for the opposite of what variance risk premium is saying. If gap between implied and realized volatility that systematic vol sellers harvest moves against that book, the first question is not “is the story clever?” but whether size, hedges, and stop logic still match the observation.
How to read it
State the expiry and Greek exposure; unmarked vol or pinning effects rewrite the thesis. Prefer a short written null hypothesis for Variance Risk Premium: what would falsify the current reading in the next window?