Hedging derivative securities with volatility futures

• Main Authors: YAP, Kian Leong Nelson, LIM, Kian Guan, ZHAO, Yibao
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2016
• Subjects: optimal replication; dynamic portfolio; stochastic volatility; hedging; derivative securities; volatility futures; derivatives; Gauss-Hermite quadrature; simulation; put replication; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/5266
• Institution: Singapore Management University

We show a method to replicate S&P 500 exchange traded fund (ETF) European synthetic put by optimally rebalancing a portfolio of the underlying ETF shares, the VIX futures contracts, and treasury bonds over discrete periods. The motivation for this study is two-fold. Firstly, market-makers in S&a...