Gaining the Alpha Advantage in Volatility Trading (Presentation Slides)

Quantitative Investment Strategies Summit, Amsterdam, 2015

37 Pages Posted: 7 Sep 2017

See all articles by Artur Sepp

Artur Sepp

Sygnum Bank's Asset Management

Date Written: May 18, 2015

Abstract

We present some empirical evidence for short volatility strategies and for the cyclical pattern of their P&L. The cyclical pattern of the short volatility strategies produces an alpha in good times but collapses to the beta in bad times. We introduce a factor model with risk-aversion to explain the risk-premium of short volatility strategies as a compensation to bear losses in bad market regimes. We then consider an econometric model for statistical inference of market regimes and for optimal position sizing. Finally, we illustrate model applications for generating alpha from volatility strategies.

Keywords: Volatility trading, risk-premia, cyclicality risk, diversification

JEL Classification: G10, G11, G12

Suggested Citation

Sepp, Artur, Gaining the Alpha Advantage in Volatility Trading (Presentation Slides) (May 18, 2015). Quantitative Investment Strategies Summit, Amsterdam, 2015, Available at SSRN: https://ssrn.com/abstract=3032098

Artur Sepp (Contact Author)

Sygnum Bank's Asset Management ( email )

Uetlibergstrasse 134a
Zurich, 8045
Switzerland

HOME PAGE: http://artursepp.com

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