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Volatility exposure for strategic asset allocation

par Briere, Marie ;Burgues, Alexandre;Signori, Ombretta
Référence Journal of portfolio management, 36, 3, page (105-116)
Publication Publié, 2010-03

Article révisé par les pairs

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Résumé :

Brière, Burgues, and Signori examine the advantages of incorporating strategic exposure to equity volatility into the investment opportunity set of a long-term equity investor. They consider two standard volatility investments: implied volatility and volatility risk premium strategies. An analytical framework, which offers pragmatic solutions for longterm investors who seek exposure to volatility, is used to calibrate and assess the risk - return profiles of portfolios.The benefit of volatility exposure for a conventional portfolio is shown through a mean-modified Value at Risk portfolio optimization. A pure volatility investment makes it possible to partially hedge downside equity risk and thus reduce the risk profile of a portfolio, while an investment in the volatility risk premium substantially increases returns for a given level of risk. A well-calibrated combination of the two strategies enhances both the absolute and risk-adjusted returns of a portfolio.