What is the average Sharpe ratio of volatility arbitrage funds?

Question

Where can I get data on performance metrics for volatility arbitrage funds? I am trying to compare the Sharpe ratio of my strategy to those of the major players.

Answer 1

This depends a little bit on your definition of volatility arbitrage but in general what is meant is a strategy that takes advantage of the difference between implied volatility and realized volatility. Normally you receive implied variance and pay realized variance.

This strategy is the classical example of picking up nickles in front of a steamroller because it generates quite high Sharp ratios over extended periods of time until it crashes and when not managed right even blows up.

So just to give you some benchmarks you should search for "Volatility Arbitrage Index" (e.g. here and here - with Sharpe ratios included) and there are even some investable products out there (e.g. here - Sharp ratios included too).

So it very much depends on the time range what Sharp ratio you will get - the following chart makes it clear what I mean (Source: http://www.cboe.com/micro/vty/):