Volatility as an Asset Class for Long-Term Investors
Burgues, Alexandre; Signori, Ombretta; Brière, Marie (2009), Volatility as an Asset Class for Long-Term Investors, in Berkelaar, Arjan B.; Coche, Joachim; Nyholm, Ken, Interest Rate Models, Asset Allocation and Quantitative Techniques for Central Banks and Sovereign Wealth Funds, Palgrave McMillan : Basingstoke, p. 265-280
Book titleInterest Rate Models, Asset Allocation and Quantitative Techniques for Central Banks and Sovereign Wealth Funds
Book authorBerkelaar, Arjan B.; Coche, Joachim; Nyholm, Ken
Number of pages408
MetadataShow full item record
Abstract (EN)This work shows how long-term investors can benefit from adding volatility as an asset class to their portfolio. Two types of "structural" exposure – long implied volatility and long volatility risk premium – are now simple to implement. Implied volatility exposure can be used to significantly reduce the risk profile of the portfolio, and especially extreme risks. Adding a volatility risk premium investment is less appealing : it substantially increases returns for a given level of risk, but at the cost of higher extreme risks. However a combination of the two volatility strategies is very attractive, thanks to fairly effective reciprocal hedging during periods of market stress. It delivers enhanced absolute and risk-adjusted returns, with smaller extreme risks than a traditional portfolio. Over the long term, volatility strategies make it possible to build portfolios that are more efficient than a pure-bond or equity/bond investment.
Subjects / KeywordsMarket; Equity prices; strategies; investment decision
Showing items related by title and author.
An arbitrage-free interest rate model consistent with economic constraints for Long-Term Asset Liability Management Vialas, Christine; Touzi, Nizar; Aïd, René (2012-01) Article accepté pour publication ou publié