Post by Sapphire Capital on Feb 11, 2009 21:35:20 GMT 4
Volatility Arbitrage Indices - A Primer
Keith Loggie
Standard & Poor's
July 2008
Abstract:
Volatility arbitrage is morphing from a niche institutional strategy to mass market, index-linked products. Volatility arbitrage strategies attempt to take advantage of the difference between the implied volatility of an asset and its realized volatility. Variance swaps are ideally suited to capturing the difference between implied and realized volatility. Volatility arbitrage indices, such as the S&P 500 Volatility Arbitrage Index, measure the performance of a tradable short variance swap strategy that is long implied volatility and short realized volatility. Since 1990, the S&P 500 Volatility Arbitrage Index has outperformed the S&P 500 at an annualized rate of more than three percentage points while having one-third of benchmark volatility. It has never had a twelve-month negative return period.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1321707_code1182306.pdf?abstractid=1321707&mirid=1
Keith Loggie
Standard & Poor's
July 2008
Abstract:
Volatility arbitrage is morphing from a niche institutional strategy to mass market, index-linked products. Volatility arbitrage strategies attempt to take advantage of the difference between the implied volatility of an asset and its realized volatility. Variance swaps are ideally suited to capturing the difference between implied and realized volatility. Volatility arbitrage indices, such as the S&P 500 Volatility Arbitrage Index, measure the performance of a tradable short variance swap strategy that is long implied volatility and short realized volatility. Since 1990, the S&P 500 Volatility Arbitrage Index has outperformed the S&P 500 at an annualized rate of more than three percentage points while having one-third of benchmark volatility. It has never had a twelve-month negative return period.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1321707_code1182306.pdf?abstractid=1321707&mirid=1