Perfect hedging?

Discussion in 'Options' started by bologeorge, Mar 3, 2013.

  1. It is widely known that shorting vix futures is a profitable strategy, but it suffers from sudden drops as vix spike. Suppose you short vix futures and long a number of treasury bond futures, you will be protected when market becomes panic,and in long term both sides have positive returns. Is this a perfect hedging?
     
  2. Nope.....
     
  3. The only problem with this strategy that I can imagine is that US government default. Which you will be trapped anyway.
     
  4. There are many problems with this strategy.
     
  5. such as?
     
  6. Perhaps start by listing your thoughts on the hedge ratio that makes it "perfect".
     
  7. That's not difficult. You need to combine a number of vix futures and short, mid and long term bonds and test its performance. The best sharpe ratio is the best.
     
  8. Do you think that will run into any "curve fitting" issues?
     
  9. I'm sorry I don't understand.
     
  10. determine the hedge ratio and then find out how it would have performed over the last few years.

    and then determine how it would have performed in different interest rate envronments. determine how it would have performed in different equity vol environments.

    then come back and tell us if it's a perfect hedge.
     
    #10     Mar 3, 2013