Equity markets’ evolution is influenced by investors’ behavioral biases: overconfidence, herding behavior, fear of loss, etc. In the case of fear of loss, investors are much more sensitive to the losses they might be subject to when investing in financial markets than to the gains they might extract from them. In order to prevent these losses, investors tend to seek protection against strong market movements and the related volatility by buying options. In exchange, the sellers of these options charge a risk premium. The Volatility Risk Premium strategy precisely seeks to exploit this risk premium and the fear of loss by structurally selling volatility.
The strategy’s objective is to seek to capture the volatility risk premium in order to provide an alternative long term return source to traditional asset classes.
Aim to generate long term returns by capturing the volatility risk premium
Daily liquidity through a strategy using only in liquid and listed instruments
The Volatility Risk Premium strategy consists in an active strategy of selling liquid and listed derivatives (options and index futures), thus seeking to avoid the pitfalls of passive strategies.
Generate a long-term return by capturing the volatility risk premium.
Volatility of global equity markets (S&P 500, Eurostoxx50, Footsie100, Nikkei and HangSeng indices) through liquid and listed instruments (index derivatives)
Main risks: capital loss risk, volatility-linked risk, equity risk, exchange rate risk, counterparty risk, geographic and portfolio concentration risk, model-based risk.