Variance swaps
Short volatility exposures pose risks
A dangerous game
Global events fail to rock dispersion trades
Recent global events have not dented the popularity of dispersion trades among hedge funds, claim bankers
Artradis collapse a failure of judgement, not risk management, says co-founder Diggle
Artradis was one of Asia’s most successful hedge funds until it hit difficulties in 2009 and 2010 that resulted in losses of $700 million and culminated in its closure in late February. But the fund’s co-founder says error of judgement and a lack of…
Curbing dispersion exposure
Dispersion tactics
Volatility: the next mainstream asset class?
A volatile time
Correlation dislocation
Macro hedging in disrepair
Structural changes behind rise in long-dated skew, say dealers
Reduction in risk appetite and regulatory crackdown causing increase in long-dated skew, say equity derivatives dealers
Bank results suffer after May volatility
Short volatility positions contribute to poor equity derivatives results
Equity volatility backlash
Taking a long equity volatility position is a favourite macro hedge for risk managers and traders across asset classes, but the trade doesn’t always work as expected. How has the volatility experienced in May and June affected macro hedging? Joel Clark…
Volatility, correlation and skew too
Surviving skew
The value of a variance swap – a question of interest
Pricing equity variance swaps is well understood in the case of deterministic interest rates, but particularly for longer-dated swaps the stochastic nature of the rate cannot be ignored. Here, Per Hörfelt and Olaf Torné derive the fair strike when both…
Return to variance?
Banks and investors were hammered on short single-stock variance positions during the crisis, causing many dealers to pull back from the variance swap market altogether. Instead, some have been pushing volatility swaps as an alternative, but not everyone…
Return to variance?
Banks and investors were hammered on short single-stock variance positions during the crisis, causing many dealers to pull back from the variance swap market altogether. Instead, some have been pushing volatility swaps as an alternative, but not everyone…
An aversion to variance
As volatility spiked in late 2008, variance swaps contributed to huge bank losses, particularly in single stocks. Some dealers have now stopped quoting single-stock variance swaps, while activity in the broader market has been scaled back. Mark Pengelly…
Smile dynamics III
In two articles published in 2004 and 2005 in Risk, Lorenzo Bergomi assessed the structural limitations of existing models for equity derivatives and introduced a new model based on the direct modelling of the joint dynamics of the spot and the implied…
Smile dynamics III
In two articles published in 2004 and 2005 in Risk, Lorenzo Bergomi assessed the structural limitations of existing models for equity derivatives and introduced a new model based on the direct modelling of the joint dynamics of the spot and the implied…
Variance swaps under no conditions
Conditional variance swaps are claims on realised variance that is accumulated when the underlying asset price stays within a certain range. Being highly sensitive to movements in both asset price and its variance, they require a very reliable model for…
Variance swaps and non-constant vega
Variance swaps have gained in popularity due to their ability to provide investors with purevolatility exposure – a fairly stable gamma exposure despite changes in the value of theunderlying. The vega exposure of this product, however, varies linearly…
Smile dynamics II
In an article published in Risk in September 2004, Lorenzo Bergomi highlighted how traditionalstochastic volatility and jump/Lévy models impose structural constraints on the relationshipbetween the forward skew, the spot/volatility correlation and the…
Corridor variance swaps
This article studies a recent variation of a variance swap called a corridor variance swap (CVS). For this swap, returns are not counted in the realised variance calculation if the reference index level is outside some specified corridor. CVSs allow…
Corridor variance swaps
This article studies a recent variation of a variance swap called a corridor variance swap (CVS). For this swap, returns are not counted in the realised variance calculation if the reference index level is outside some specified corridor. CVSs allow…
Volatility swaps made simple
Volatility