With a 30% volatility target, I think that means my daily standard deviation should be 1.875%, or 30% divided by 16. Given that I lost 10% in one day, is that cause for concern? It seems like that was a 5+ sigma event, which should have extremely low probability assuming a normal distribution.
... unfortunately you can't assume a normal distribution, especially if you're trading vol indices. What's the distribution of daily losses seen in your backtest? GAT
@globalarbtrader that's a very low drawdown from hwm, considering I'm almost twice that at the same vol with 46 instruments. That said, I am very equity market heavy. With regards to holidays etc, I'm in the process of moving everything to Google Cloud now; I hired a docker expert on upwork to help package it all up, it seems to be working a lot better, and much less prone to the cleaner unplugging it to use the vacuum...
Hey all, I'm wondering if how risky it is to short the 2nd month VIX futures. Let's say there is an unexpected nuclear war, what is the maximum that it can go to? The front month went up to 40 which is about 4x normal during the financial crisis. I guess what I'm trying to say is that I'm worried that even a small part of portfolio short this instrument can lead to bankruptcy in a real disaster.
Easy to work out. If the VIX goes from 10 to 40 and you can't sell out of your position and you don't get auto liquidated then you'd lose 30 x $1,000 = $30,000 per contract. A big VIX position for me would be 5 contracts. On my notional of around $500K that's a loss of $150/500 = 30%. If your portfolio is less diversified,with a larger VIX position, then you perhaps should be concerned. But frankly, with an unexpected nuclear war, this would be the last of my worries!!! GAT
I came across this paper, interesting read. https://www.ahl.com/documents/downl...ection_and_Time_Series_English_01-12-2015.pdf
I am very much long stocks and since April 2016 been shorting Indexes on a pattern on new highs and hedge. Way I have always traded since early 90s. Short Indexes hedge my stocks and options hedge my Indexes, what often happens, short Index futures captures some losses on open stock positions, and when/if futures don't go low enough, future's hedges kick in to cover futures. I keep doing well dancing options around stock positions and collecting mountains of dividends on most of core stocks bought in 2009. Yea, VIX is real funny animal and I have only played it doing longs, makes no sense to short it regardless of cries of the world for system trading. One of my rules, for recent spikes, instead of exiting 10% at certain value, it is increased to 80% cause spikes so often revert to value/mean, so for me better to enjoy free money and BTFD. And best of all, it all automated, back for naps and studying... Keep safe all.
Due to the nature of VX, if a disaster were to happen during market close, the VIX will shoot up on open, so your stop loss might not be enough. It's like one of the most volatile financial instruments ever created which makes it hard to risk manage. I was hoping someone can tell me if the market can be so fearful as to price it above 100 or above 200? Is there a theoretical limit to it, ie bounded by actual implied volatility itself? And is there a limit to implied volatility itself?
Hi there, First of all, just wanted to say thank you for your book, which I think is excellent, and has helped me immensely. I am curious, why is that your system seems to outperform AHL´s own "flagship product" or other similar multi asset products from other investment companies? Am I missing something, besides perhaps they have a lower volatility target? For example: https://www.ahl.com/programmes/ahl-dimension