Volatility Dependent Structured Products
Forthcoming in The Journal of Investing
Posted: 23 Dec 2019 Last revised: 23 Nov 2020
Date Written: July 21, 2020
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: Suggested Citation