Equity volatility – an investment tool in the hunt for absolute returns

With the recent retrenchment of equity markets, many investors are refocusing their attention towards investment strategies that seek to provide stable returns independent of market direction

While these types of strategies are barely new – hedge funds have pursued absolute return for a long time – it is only recently that they have made their way into the structured investment arena. One of the simplest examples of this has been structured investments providing non-directional exposure to equity markets, much like a 'systematic long/short' strategy, but there are also many others. Investing in so-called 'hidden' or 'implicit' assets such as volatility, dividends or correlation has also gained popularity over the past few years and is now regarded as a credible alternative to pure equity investments. Leading this trend, volatility has emerged as an asset class in its own right that can be traded using liquid financial instruments. The development of this new asset class is one of the more important developments in the options market since the introduction of the Black-Scholes pricing model in 1973.

- Equity volatility – an investment tool in the hunt for absolute returns (PDF, 214KB)