Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/279557 
Year of Publication: 
2023
Series/Report no.: 
CFR Working Paper No. 23-06
Publisher: 
University of Cologne, Centre for Financial Research (CFR), Cologne
Abstract: 
Derivatives strategies that aim to earn variance risk premiums are exposed to sharp price declines during market crises, calling into question their suitability for the longterm investor. Our paper defines, analyzes, and proposes potential solutions to three problems (payoff, leverage and finite maturity) linked to designing suitable variancebased investment strategies. We conduct an empirical study of such strategies for the S&P 500 index options market and find strong effects of certain design elements on risk and return. Overall, our results show that variance strategies can be attractive to the long-term investor if properly designed.
Subjects: 
Variance Risk Premium
Variance Factor
Trading Strategies
Long-term Investor
JEL: 
G10
G11
G23
Document Type: 
Working Paper

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