We propose a fear index for corn using the variance swap rate synthesized from out‐of‐the‐
money call and put options as a measure of implied variance. We find negative and time‐
varying variance risk premiums (realized variance minus implied variance) in the corn
market from 1987 to 2009. Our results contrast with Egelkraut, Garcia, and Sherrick (2007),
but are in line with the findings of Simon (2002). We conclude that our synthesized model‐
free implied variance estimation procedure contains superior information about future …

We propose a fear index for corn using the variance swap rate synthesized from out-of-the-
money call and put options as a measure of implied variance. Previous studies estimate
implied variance based on Black (1976) model or forecast variance using the GARCH
models. Our implied variance approach, based on variance swap rate, is model
independent. We compute the daily 60-day variance risk premiums based on the difference
between the realized variance and implied variance for the period from 1987 to 2009. We …