This is a summary of links featured on Quantocracy on Tuesday, 12/20/2016. To see our most recent links, visit the Quant Mashup. Read on readers!
Volatility Trading Strategies, A Comparison of VRP and RY Strategies [Relative Value Arbitrage]In previous posts, we presented 2 volatility trading strategies: one strategy is based on the volatility risk premium (VRP) and the other on the volatility term structure, or roll yield (RY). In this post we present a detailed comparison of these 2 strategies and analyze their recent performance. The first strategy (VRP) is based on the volatility risk premium. The trading rules are as follows
Ex-ante and Ex-post Risk Model An Empirical Test [Alphaism]Whenever constructing a quant portfolio or managing portfolio risk, the risk model is at the heart of the process. A risk model, usually estimated with a sample covariance matrix, has 3 typical issues. Not positive-definite, which means[not invertible] Exposed to extreme values in the sample, which means[no stable] Ex-post tracking error is always larger than the ex-ante tracking error,