Volatility as a New Class of Assets? The Advantages of Using Volatility Index Futures in Investment Strategies

30 Pages Posted: 12 Oct 2014  

Juliusz Jablecki

University of Warsaw - Faculty of Economic Sciences; National Bank of Poland

Ryszard Kokoszczynski

Warsaw University - Dept. of Economics; National Bank of Poland

Pawel Sakowski

University of Warsaw

Robert Slepaczuk

University of Warsaw - Faculty of Economic Sciences

Piotr Wojcik

University of Warsaw - Faculty of Economic Sciences

Date Written: October 11, 2014

Abstract

This paper investigates the changes in the investment portfolio performance after including VIX. We apply different models for optimal portfolio selection (Markowitz and Black-Litterman) assuming both the possibility of short sale and the lack of it. We also use various assets, data frequencies, and investment horizons to get a comprehensive picture of our results’ robustness. Investment strategies including VIX futures do not always deliver higher returns or higher Sharpe ratios for the period 2006-2013. Their performance is quite sensitive to changes in model parameters. However, including VIX significantly increases the returns in almost all cases during the recent financial crisis. This result clearly emphasizes potential gains of having such an asset in the portfolio in case of very high volatility in financial markets.

Keywords: volatility, VIX futures, investment strategies, optimal portfolio selection, Markowitz model, Black-Litterman model

JEL Classification: G11, G14, G17

Suggested Citation

Jablecki, Juliusz and Kokoszczynski, Ryszard and Sakowski, Pawel and Slepaczuk, Robert and Wojcik, Piotr, Volatility as a New Class of Assets? The Advantages of Using Volatility Index Futures in Investment Strategies (October 11, 2014). Available at SSRN: https://ssrn.com/abstract=2508643 or http://dx.doi.org/10.2139/ssrn.2508643

Juliusz Jablecki

University of Warsaw - Faculty of Economic Sciences ( email )

Dluga Street 44/50
Warsaw, 00-241
Poland

National Bank of Poland ( email )

Warsaw
Poland

Ryszard Kokoszczynski

Warsaw University - Dept. of Economics ( email )

Warsaw, 00-241
Poland
(4822)8314725 (Phone)
(4822)8314752 (Fax)

National Bank of Poland ( email )

Warsaw
Poland
(4822)5854381 (Phone)
(4822)5854374 (Fax)

Pawel Sakowski

University of Warsaw ( email )

Krakowskie Przedmiescie 26/28
Warszawa, Pl-00681
Poland

Robert Slepaczuk

University of Warsaw - Faculty of Economic Sciences ( email )

Dluga Street 44/50
Warsaw, 00-241
Poland

Piotr Wojcik (Contact Author)

University of Warsaw - Faculty of Economic Sciences ( email )

Dluga Street 44/50
Warsaw, 00-241
Poland

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