Date
2012
Dewey
Economie financière
Sujet
Investment strategy; Portfolio choice; Conditional Value-at-Risk; Implied volatility; Hedging
JEL code
G.G1.G11; G.G1.G15; G.G1.G17
Journal issue
Bankers, markets & investors
Number
121
Publication date
2012
Article pages
17-29
Publisher
Groupe Banque
Author
Brière, Marie
status unknown
Fermanian, Jean-David
status unknown
Malongo, Hassan
status unknown
Signori, Ombretta
229847 AXA France
Type
Article accepté pour publication ou publié
Abstract (EN)
Adding volatility exposure to an equity portfolio offers interesting opportunities for long-term investors. This article discusses the advantages of adding a long volatility strategy for a protection to a global European equity portfolio and to specific equity portfolios based in "core" or "peripheral" countries within the euro zone. A European investor today has the choice of investing in US or European equity volatility. We check whether a long volatility strategy based on VSTOXX futures is better than a strategy based on VIX futures. The benefit of using volatility strategies as a hedge for equities is shown through a Mean/Modified-CVaR portfolio optimization. We find that long volatility strategies offer valuable protection to all European equity investors. A long volatility strategy based on VSTOXX futures offers better protection than a similar one based on VIX futures. It reduces the risk of an equity portfolio more significantly, while providing more attractive returns. For specific European investors, and despite major differences in local European equity markets, our long volatility strategy shows a certain homogeneity and provides efficient protection, whatever the country.