Publication
Title
Volatility as investment : crash protection with calendar spreads of variance swaps
Author
Abstract
Nowadays, volatility is not only a risk measure but can be also considered an individual asset class. Variance swaps, one of the main investment vehicles, can obtain pure exposure on realized volatility. In normal market phases, implied volatility is often higher than the realized volatility will turn out to be. We present a volatility investment strategy that can benefit from both negative risk premium and correlation of variance swaps to the underlying stock index. The empirical evidence demonstrates a significant diversification effect during the financial crisis by adding this strategy to an existing portfolio consisting of 70% stocks and 30% bonds. The back-testing analysis includes the last ten years of history of the S&P500 and the EUROSTOXX50.
Language
English
Source (journal)
Journal of applied operational research
Publication
2014
Volume/pages
6:4(2014), p. 243-254
Full text (publishers version - intranet only)
UAntwerpen
Faculty/Department
Research group
Publication type
Subject
External links
Record
Identification
Creation 28.02.2015
Last edited 14.03.2016