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삼성증권의 뛰어난 보고서 – 변동성,한반도, 3팩터모델에 이어지는 글입니다. 주제는 변동성입니다. 지난 번에 놓쳤던 보고서중 NH투자증권의 최창규 위원 보고서가 있습니다. 변동성 ETP가 나오려던 비슷한 시점에 발표한 보고서입니다. 제목 그대로의 내용을 담고 있습니다.
파생충동(派生衝動), 변동성(Volatility) 투자의 기본기
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앞서 삼성증권 전균 위원님이 작성한 완벽한 변동성 보고서로 만족할 수도 있지만 해외의 트레이더가 보완할 수 있는 수많은 변동성 자료를 모아서 공개하여 참고로 소개합니다. 구체적인 전략보다는 변동성이란 개념을 자세히 설명하여 트레이더의 이해를 돕는 목적으로 목록을 작성한 듯 합니다. Volatility White Papers and Presentations에 올라온 자료들은 크게 네가지로 자료를 분류하여 소개하고 있습니다.
Volatility Concepts & Volatility Trading
Probability Distributions—Normal and Otherwise
Volatility Contagion—Will Short Volatility Destroy the World?
Variance Swaps—the Technology That Underlies the VIX
Volatility Concepts & Volatility Trading
- “Volatility: A New Return Driver?” by Greggory Flinn & Roger Schreiner
- A good non-mathematical overview of volatility, volatility products including futures and a couple example trading strategies using volatility Exchange Traded Products
- Easy Volatility Investing by Tony Cooper
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- Available via free download on the SSRN repository, this paper provides a good non-mathematical overview of volatility investing. It includes a good discussion on the Volatility Risk Premium (VRP) which is an important concept. It also provides detailed analysis of several volatility based trading schemes
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- “Volatility Trading: Trading Volatility, Correlation, Term Structure and Skew” Bennett & Gil
- Over 200 pages of wide-ranging information—from covered calls to exotic options, to links between CDS spreads and implied volatility. Something for everyone.
Probability Distributions—Normal and Otherwise
- Tales of the Unexpected by Andrew Haldane
- This accessible paper (only one equation) is the best that I’ve ever read on the differences between processes accurately modeled by Gaussian/normal distributions and those better matched by power law distributions. I have seen this distinction made many times, but this paper provided examples and reasoning that really helped me internalize the differences. Most of our stock market computations (including Black & Scholes for option pricing) and risk management formulas assume normal (or log-normal) distributions but this paper lays out a compelling case for why power law distributions are often a better match.
- The normal distribution is the log-normal distribution by Werner Stahel & Eckhard Limpert
- This presentation does a very nice job of distinguishing between the normal and log-normal distribution and providing guidelines for when they should be used. Bottom line, for stock price distributions we should use the log-normal distribution.
The VIX® and VIX Futures
- Understanding VIX Futures and Options by Dennis Dzekounoff
- This article contains an excellent, non-mathematical overview of the peculiarities of VIX options including their Greeks and term structure. Most broker’s Greeks for VIX options are completely wrong to start with, but Dennis points out some other issues like steep call skew, dangerous calendars, and slower than expected theta decay.
- VIX White Paper provided by the Cboe
- Complete details on the VIX calculation, recently updated (August-2018) to reflect the new methodology that reduces the chances that bad quotes on the SPX options will glitch the VIX.
- “The VIX-VIX Futures Puzzle?” by Ivan Oscar Asensio
- A paper testing the forecast accuracy of VIX futures that starts with a good non-mathematical overview before diving into a comprehensive technical overview of the VIX, VIX Futures, and volatility term structures. It skips the calculus but provides a clear description and comprehensive formulas.
- VIX Settlement Process by Dominic Salvino & William Speth
- This presentation, included in a session from the Cboe’s 2014 European Risk Management Conference, provides a very good overview and some detailed examples of how the Cboe handles the controversial expiration process for VIX options and futures
- A Tale of Two Indexes by Peter Carr and Liuren Wu
- This paper briefly goes over the Cboe’s first try at a volatility index, now called the VXO but most of the paper is a mathematical tour de force taking us through the equations underlying the VIX, VIX Futures, and VIX options
Volatility Contagion—Will Short Volatility Destroy the World?
- Is Short Volatility a “Crowded Trade” by William Valentine
- This paper reviews the common arguments regarding the risks of short volatility. I particularly liked the discussion on the widely mis-interpreted Commitments of Traders report from the CFTC that tallies long and short positions in VIX Futures.
- Everybody’s Doing It: Short Volatility and Shadow Financial Insurers by Vineer Bhansali and Lawrence Harris
- This paper, published February 16, 2018 narrowly missed “I told you so” honors for foreshadowing the record February 5, 2018 volatility spike and the mauling of the short volatility Exchange Traded Products: XIV, SVXY, and VMIN.
- Volatility and the Allegory of the Prisoner’s Dilemma: False Peace, Moral Hazard, and Shadow Convexity by Christopher Cole
- This link takes you to a list of interesting and entertaining white papers provided by Artemis Capital Management (including the title above) on the risks associated with short volatility positions.
Variance Swaps—the Technology That Underlies the VIX
- Just What You Need to Know about Variance Swaps by Sebastien Bossu, Eva Strasser, and Regis Guichard (JPMorgan)
- This technical paper includes a very good discussion and accompanying graphs regarding the “Static Replication of Variance Swap”—which happens to be underlying mechanism of the Cboe’s VIX. Technically the VIX is a variance swap priced in volatility points.
- “Variance and Convexity: A Practitioner’s Approach ” by Vishnu Kurella
- My favorite paper from the CBOE’s 2013 Risk Management Conference. Sparse and very technical it addresses some of the differences between variance and volatility with regards to VIX futures.
