Trading and Investing in Volatility Products

35 Pages Posted: 13 Oct 2015

See all articles by Carol Alexander

Carol Alexander

University of Sussex Business School

Julia Kapraun

Goethe University Frankfurt - House of Finance

Dimitris Korovilas

University of Reading - ICMA Centre

Date Written: November 2015

Abstract

Since the banking crisis the market for volatility exchange‐traded products has developed rapidly as it opens to clients beyond the large institutional investor pool. Speculation is driven by increasingly complex leveraged and inverse exposures including those that attempt to trade on significant roll costs in volatility futures curves. Longer‐term investors use these products for the purposes of equity diversification, driven by fears of an ongoing Eurozone crisis. We survey the burgeoning academic literature in this area and present a comprehensive and up‐to‐date comparison of the market and statistical characteristics of European and US exchange‐traded volatility products.

Keywords: VIX, VSTOXX, volatility futures, volatility ETPs, roll yield

JEL Classification: G12, G15, G23

Suggested Citation

Alexander, Carol and Kapraun, Julia and Korovilas, Dimitris, Trading and Investing in Volatility Products (November 2015). Financial Markets, Institutions & Instruments, Vol. 24, Issue 4, pp. 313-347, 2015. Available at SSRN: https://ssrn.com/abstract=2673244 or http://dx.doi.org/10.1111/fmii.12032

Carol Alexander (Contact Author)

University of Sussex Business School ( email )

Falmer, Brighton BN1 9SL
United Kingdom

HOME PAGE: http://www.carolalexander.org

Julia Kapraun

Goethe University Frankfurt - House of Finance ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Dimitris Korovilas

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 (0)118 378 8239 (Phone)
+44 (0)118 931 4741 (Fax)

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