VIX Futures and Options - A Case Study of Portfolio Diversification during the 2008 Financial Crisis

Consistent modeling of S&P 500 and VIX derivatives

“…However, long volatility may provide significant diversification benefits in large downward trends of the market. Additionally, the conditional nature of the negative correlation between SPX and VIX (consistent with the research results of Toikka et al (2004), Grant et al (2007b) and Szado (2009) suggesting that VIX calls may have higher payouts than SPX puts) implies that VIX calls may provide more ''bang for the buck'' than SPX puts in diversifying a typical portfolio. These observations suggest that a long term passive long volatility position may return negative excess returns.…”

Are the KOSPI 200 implied volatilities useful in value-at-risk models?

“…5 Moran and Dash (2007), and Szado (2009) . We also find that whereas the BS OTM implied volatility is clearly a better input in the VaR framework than the BS ATM implied volatility before the financial crisis, the BS ATM implied volatility has fewer VaR violations than the BS OTM implied volatility during and after the crisis.…”

The Different Faces of Volatility Exposure in Portfolio Management

“…Also see Dash and Liu [2012] for similar analysis over a somewhat shorter time period. 6 For a more detailed analysis of performance drivers of options strategies and VIX futures see Gregory et al [2006], Szado [2009], Deshpande and Bhatta [2010], Cheeseman et al [2011], Kolanovic et al [2012], and Dash and Liu [2012]. WINTER 2013 7 The line of best fit was estimated excluding the outlier observation from the week of October 3-10, 2012.…”