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Working Paper

Future Liquidity, Present Value: Measuring and Pricing Liquidity Risk

In 1991, John Y. Campbell showed how an asset’s return is related to new information about its future cash flows and discount rates. We extend Campbell’s return decomposition to show how it is also related to new information on future liquidity.

Working Paper

Which Index Options Should You Sell?

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.

White Paper

Understanding the Volatility Risk Premium

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.

Working Paper

Risk Parity Is Not Short Volatility (Not That There's Anything Wrong with Short Volatility)

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.

Journal Article

Covered Calls Uncovered

Trade Publication

Ahead of the Curve: Time to Embrace Downside Risk

Buying equity put options to reduce a portfolio’s downside risk exposure is so attractive that the high cost of doing so all but offsets the benefit, the authors contend.

Working Paper

Being Right is Not Enough: Buying Options to Bet on Higher Realized Volatility

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

PutWrite versus BuyWrite: Yes, Put-Call Parity Holds Here Too

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

Conventional wisdom is that put options are effective drawdown protection tools.

Journal Article

To Trade or Not to Trade? Informed Trading With Short-Term Signals for Long-Term Investors

One of the great frustrations in the asset management profession is to watch trading costs render useless a signal that predicts near-term returns beautifully.