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Trading and Investing in Volatility Products

Author

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  • Carol Alexander
  • Julia Kapraun
  • Dimitris Korovilas

Abstract

Since the banking crisis the market for volatility exchange‐traded products has developed rapidly as it opens to clients beyond the large institutional investor pool. Speculation is driven by increasingly complex leveraged and inverse exposures including those that attempt to trade on significant roll costs in volatility futures curves. Longer‐term investors use these products for the purposes of equity diversification, driven by fears of an ongoing Eurozone crisis. We survey the burgeoning academic literature in this area and present a comprehensive and up‐to‐date comparison of the market and statistical characteristics of European and US exchange‐traded volatility products.

Suggested Citation

  • Carol Alexander & Julia Kapraun & Dimitris Korovilas, 2015. "Trading and Investing in Volatility Products," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 24(4), pages 313-347, November.
    • Handle: RePEc:wly:finmar:v:24:y:2015:i:4:p:313-347
    DOI: 10.1111/fmii.12032
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    References listed on IDEAS

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    3. Robert T. Daigler & Ann Marie Hibbert & Ivelina Pavlova, 2014. "Examining the Return–Volatility Relation for Foreign Exchange: Evidence from the Euro VIX," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 34(1), pages 74-92, January.
    4. Konstantinidi, Eirini & Skiadopoulos, George & Tzagkaraki, Emilia, 2008. "Can the evolution of implied volatility be forecasted? Evidence from European and US implied volatility indices," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2401-2411, November.
    5. G.D. Hancock, 2013. "VIX Futures ETNs: Three Dimensional Losers," Accounting and Finance Research, Sciedu Press, vol. 2(3), pages 1-53, August.
    6. Gabriel Drimus & Walter Farkas, 2013. "Local volatility of volatility for the VIX market," Review of Derivatives Research, Springer, vol. 16(3), pages 267-293, October.
    7. Jin E. Zhang & Jinghong Shu & Menachem Brenner, 2010. "The new market for volatility trading," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 30(9), pages 809-833, September.
    8. Galai, Dan, 1979. "A Proposal for Indexes for Traded Call Options," Journal of Finance, American Finance Association, vol. 34(5), pages 1157-1172, December.
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