New Research On Volatility Derivatives

EDHEC-Risk Institute (London, Nice, Singapore) has announced it will be conducting new research exploring the uses of volatility derivatives in equity portfolio management with the support of leading derivatives exchange Eurex. The research project’s emphasis will be on optimising access to the equity risk premium while controlling for downside risk and will be co-managed by Stoyan Stoyanov, head of research at EDHEC Risk Institute-Asia and Lionel Martellini, scientific director of EDHEC-Risk Institute.

Volatility Derivatives

Volatility Derivatives

According to Professor Stoyanov: “In 2008, worldwide equity markets collapsed and assets which conventional investment wisdom regarded as effective equity diversifiers also experienced dramatic falls. Meanwhile, equity volatility skyrocketed causing long positions in equity volatility derivatives to rally. These events dashed the exaggerated hopes placed in traditional forms of diversification and created interest in the possible use of volatility derivatives as diversifiers for traditional and alternative portfolios in general, and equity positions in particular. Against this backdrop, this new research project will look at how investors can use volatility derivatives to design equity portfolios with attractive downside-risk properties.”

Peter Reitz, member of the Executive Board of Eurex, said: “Eurex has been supporting worldwide academic research since 2003 and EDHEC-Risk Institute was one of the first and most active European institutions we have supported. As EDHEC-Risk Institute celebrates its tenth anniversary and develops into Asia, we are delighted to renew our partnership and sponsor new research into the uses of volatility derivatives.”

“The global financial crisis and stricter regulatory constraints have focused the attention of professional investors on the volatility and downside risk of their equity holdings, whetting their appetite for instruments that can help them manage their exposure. We believe that volatility derivatives are one suitable instrument and are looking forward to seeing academic research on this issue,” he added.