# implementing Volatility Managed Portfolios

How to I calculate the value of c in the vol-managed equation specified by Moreira & Muir Volatilty Managed Portfolios (2016) Equation 1?

Portfolio return in month t+1 =$$\frac{c}{RV_t^2}f_{t+1}$$

where $$RV^2_t$$ is the Realized variance over the past month , $$f_{t+1}$$ is the factor return in the next month.

• Possible duplicate of Implementing Volatility Managed Strategies – skoestlmeier Dec 8 '18 at 15:45
• Could you please add some more information here? "C" of some 2 author paper that it not linked ... hard to follow this question .. – Ric Dec 8 '18 at 19:49

## 1 Answer

Here is a simple "how to do it" answer.

Run the Volatility Managed Strategy over some historical period using an initial guess for $$c$$, say $$c_0=0.05$$. I will call this the Trial Run.

Compute the standard deviation of the strategy returns $$\sigma_0$$ and the standard deviation of the buy and hold returns $$\sigma_{BH}$$ over the same period.

Now run the Volatility Managed Strategy again over the same period but using $$c=\frac{\sigma_{BH}}{\sigma_0}c_0$$. This is the final run; you can check that the standard deviation of the VMS will be exactly equal to the standard deviation of buy and hold. And you are finished.