RT Journal Article
SR Electronic
T1 Volatility Dependent Structured Products
JF The Journal of Investing
FD Institutional Investor Journals
SP joi.2020.1.162
DO 10.3905/joi.2020.1.162
A1 Artem Dyachenko
A1 Walter Farkas
A1 Marc Oliver Rieger
YR 2020
UL https://pm-research.com/content/early/2020/12/04/joi.2020.1.162.abstract
AB 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 had invested $10,000 into the product, the product’s payoff would have been about $60,000 at the end of 2018. In comparison, if we invested $10,000 into the SPY, the SPY payoff would be only about $30,000.TOPICS: Asset-backed securities, real assets/alternative investments/private equity, CLOs, CDOs, and other structured credit, analysis of individual factors/risk premia, derivativesKey Findings▪ We construct a volatility dependent derivative (product) that includes the SPY and the in-the-money VIX put option.▪ The product incorporates both the market risk premium and the variance risk premium.▪ The Sharpe ratio of the product is higher than the Sharpe ratio of the SPY.