Timeline for Trading a synthetic replication of the VIX index
Current License: CC BY-SA 3.0
7 events
| when toggle format | what | by | license | comment | |
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| Oct 15, 2012 at 4:46 | comment | added | Strange | Thoughts? Not really :) At the time I was simply trading root-time vega-equivalent amounts of front month variance swaps. Not perfect, but good enough if you have a large book. However, it's not realistic for a non-market-maker since the bid/offer on short dated variance swaps is borderline ridiculous these days. So my advice would be to isolate the alpha-bearing feature of the VIX that forces you to think about replication (e.g. you want to be short gamma or you think the skew is rich etc.) and trade that feature alone. | |
| Oct 15, 2012 at 3:53 | comment | added | user915 | @Strange So any thoughts on alternative approaches? | |
| Oct 11, 2012 at 19:36 | comment | added | jaredwoodard | @Paul - Nothing trades like the big VIX, but the new Brazil, EEM, oil, and gold products have been trading pretty regularly, sometimes several hundreds a day, which is promising. | |
| Oct 11, 2012 at 0:46 | comment | added | pteetor | @Strange Thanks for contributing your real experience. All in all, I have concluded that replicating the cash VIX is too difficult. I am sticking with VIX curve trades using only the futures. | |
| Oct 11, 2012 at 0:44 | comment | added | pteetor | @Jared Thank you very much for your thoughtful and complete reply. These are excellent observations. Thanks, too, for bringing the variance futures to my attention. The "if they attract liquidity" thing is a problem. Does any contract but the Big VIX really trade on the CFE? | |
| Oct 9, 2012 at 4:05 | comment | added | Strange | At my previous job, I have, actually, replicated VIX index for a structured note. Straddles are not going to work - mainly because of differential decay and gamma creep. You can try replicating the strip, but on such a short-dated horizon (30 days) you will be pretty hard pressed to keep the weighting perfect. | |
| Oct 9, 2012 at 3:34 | history | answered | jaredwoodard | CC BY-SA 3.0 |