TY - JOUR
T1 - Volatility Dependent Structured Products
JF - The Journal of Investing
DO - 10.3905/joi.2020.1.162
SP - joi.2020.1.162
AU - Dyachenko, Artem
AU - Farkas, Walter
AU - Rieger, Marc Oliver
Y1 - 2020/12/04
UR - http://joi.pm-research.com/content/early/2020/12/04/joi.2020.1.162.abstract
N2 - 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.
ER -