Volatility Dependent Structured Products

Swiss Finance Institute Research Paper No. 19-64

Forthcoming in The Journal of Investing

Posted: 23 Dec 2019 Last revised: 23 Nov 2020

See all articles by Artem Dyachenko

Artem Dyachenko

University of Trier - Faculty of Economics

Walter Farkas

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; ETH Zürich

Marc Oliver Rieger

University of Trier

Date Written: July 21, 2020

Abstract

We construct a derivative that depends on the SPY and VIX and, in this way, incorporates both the market risk premium and the variance risk premium. We show that the product's Sharpe ratio is higher than the SPY Sharpe ratio. If we invest $10000 into the product, the products' payoff is around $60000 at the end of 2018. In comparison, if we invest $10000 into the SPY, the SPY payoff is around $30000.

Keywords: asset pricing, structured products, derivatives

JEL Classification: G12, G13

Suggested Citation

Dyachenko, Artem and Farkas, Walter and Rieger, Marc Oliver, Volatility Dependent Structured Products (July 21, 2020). Swiss Finance Institute Research Paper No. 19-64, Forthcoming in The Journal of Investing, Available at SSRN: https://ssrn.com/abstract=3507456 or http://dx.doi.org/10.2139/ssrn.3507456

Artem Dyachenko

University of Trier - Faculty of Economics ( email )

Germany

Walter Farkas (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland
+41-44-634 3953 (Phone)
+41-44-634 4345 (Fax)

HOME PAGE: http://https://people.math.ethz.ch/~farkas/

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

ETH Zürich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

Marc Oliver Rieger

University of Trier ( email )

15, Universitaetsring
Trier, 54286
Germany

HOME PAGE: http://www.banking-finance.uni-trier.de

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