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Working Paper
Risk Parity Is Not Short Volatility (Not That There's Anything Wrong with Short Volatility)
August 21, 2019
Are risk parity strategies hiding an implicit short volatility? To find out, we simulated stylized versions of three asset-class (equity, fixed income, and commodities) risk parity and short volatility strategies, and we compared the trading behavior and returns of each.
Working Paper
Forecasting the Distribution of Option Returns
December 12, 2018
We propose a method for constructing conditional option return distributions.
Working Paper
Being Right is Not Enough: Buying Options to Bet on Higher Realized Volatility
September 27, 2018
Should investors who buy options expect to profit when realized volatility increases? If so, under what conditions? To answer these questions, we analyzed the relationship between long volatility performance (buying options) and contemporaneous changes in volatility.
White Paper
Understanding the Volatility Risk Premium
May 11, 2018
The volatility risk premium (VRP) represents the compensation that investors earn for providing protection against market losses. We explain the reasons why it may exist and explore its historical performance with a simple option-selling strategy.
Journal Article
An Alternative Option to Portfolio Rebalancing
March 5, 2018
We explore how investors can use an implementable option selling overlay to improve portfolio rebalancing.
Working Paper
Which Index Options Should You Sell?
July 7, 2017
We study return and risk properties of equity-hedged options across the S&P 500 option surface. We evaluate returns by estimating alpha to the S&P 500 and quantify risk using return volatility, losses under stress tests, and conditional value at risk.
Journal Article
Covering the World: Global Evidence on Covered Calls
July 7, 2017
Covered call strategies may be decomposed, using a risk and performance attribution methodology, into three components: equity exposure, short volatility exposure, and equity timing. This paper applies that attribution methodology to covered calls on 11 global indexes.
White Paper
PutWrite versus BuyWrite: Yes, Put-Call Parity Holds Here Too
March 31, 2017
Surprisingly, the CBOE S&P 500 PutWrite Index has outperformed the CBOE S&P 500 BuyWrite Index by around 1.1 percent annually between 1986 and 2015. We explain the mystery behind this outperformance and its implications for portfolio construction.
Journal Article
Pathetic Protection: The Elusive Benefits of Protective Puts
February 24, 2017
Conventional wisdom is that put options are effective drawdown protection tools.
Journal Article
Embracing Downside Risk
January 15, 2017
This paper shows that downside risk tends to be the main source of long-run returns in equities and other asset classes, and argues that long-term investors may be better off embracing downside risk in certain cases.