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Volatility as an Asset Class

In: THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS

Author

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  • Tom Nohel
  • Steven K. Todd

Abstract

In this chapter, we discuss the development and evolution of the CBOE's volatility index or VIX, the correlation structure of VIX with other assets, and we highlight hedge fund strategies that are exposed to volatility and that could therefore potentially benefit from the existence of derivatives that reference VIX. We also describe the development of the markets for VIX derivatives and detail their structure, as well as the development of pricing models for VIX derivatives. Finally, we describe the development of exchange-traded products (ETPs) that reference volatility, and we analyze the structure of these products. We conclude with an analysis of the performance of VIX-related ETPs, and we test the performance of simple technical trading rules that use ETPs that reference VIX. These have all been crucial to the development of volatility as a separate asset class.

Suggested Citation

  • Tom Nohel & Steven K. Todd, 2015. "Volatility as an Asset Class," World Scientific Book Chapters, in: Anastasios G Malliaris & William T Ziemba (ed.), THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 14, pages 437-464, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814566926_0014
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    Cited by:

    1. Wei‐Han Liu & Jow‐Ran Chang, 2022. "What can inverse VIX contribute to an investment portfolio?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3791-3798, July.
    2. Markus Vogl, 2022. "Quantitative modelling frontiers: a literature review on the evolution in financial and risk modelling after the financial crisis (2008–2019)," SN Business & Economics, Springer, vol. 2(12), pages 1-69, December.

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