Variance Risk Premium · Desk
Free to readHow the VRP Is Computed
One implied reading, one realized reading, matched across the same 30 days — then ranked against history. The full recipe.
The variance risk premium compares a forecast to its outcome. The care is all in the alignment. Here is each step.
The implied leg — VolDex® (30d)
The forecast is Nations VolDex® at the 30-day tenor — a clean, at-the-money implied-vol reading. It represents what the option market was charging for 30 days of volatility on the measurement date.
The realized leg — realized vol (30d)
The outcome is realized volatility over a 30-day window: the annualized standard deviation of daily returns, scaled by √252. The crucial detail is which 30 days — the ones the implied reading was actually forecasting.
The implied reading on day t is graded against the realized vol of the 30 days it was forecasting — the way the trade actually resolves.
The premium
The VRP is implied minus realized: VolDex®(t) − RealizedVol(t→t+30). Positive means the option market overcharged for the risk that showed up; negative means the move outran the price. Because the comparison is forward, the most recent readings are provisional until their realized window finishes — a point the tool's history makes explicit.
The percentile
To make the premium comparable across names and regimes, the tool ranks the current VRP against the underlying's own history as a percentile, and reports the average VRP alongside. A high percentile flags an unusually rich premium; a low or negative one flags a thin or inverted premium.
Limitations
VRP is a measured spread, not a guarantee. The forward window makes recent readings incomplete; it depends on the VolDex® and realized estimates; and a rich historical percentile describes the past distribution, not the next outcome. Read it as a well-grounded estimate of how generous the premium has been, sized for the fact that its worst outcomes are rare and large.
How it maps to the Nations suite
VRP joins the implied and realized lenses: VolDex® (implied level), the Skew and Term Structure (implied shape), and the Volatility Cones (implied versus realized history). The cone asks "is implied rich versus what this asset usually delivers?"; VRP answers it with the realized outcome and a sign.
The method is free. Run it on ETFs with ETF Analytics, single names with ETF + Equities, and export the full VRP series with Everything.
See plans →Educational content from Nations Indexes. Variance Risk Premium™ and VolDex® are marks of Nations Indexes. The forward window makes recent readings provisional. Nothing here is investment advice.