Volatility as an asset class: Holding VIX in a portfolio

James S. Doran

Journal of Futures Markets, 2020, vol. 40, issue 6, 841-859

Abstract: Hedging market downturns without sacrificing upside has long been sought by investors. If VIX was directly investable, adding it as a hedge to the S&P 500 would result in significantly improved performance over the equity only portfolio. However, tradable VIX products do not provide the hedge or returns investors seek over long‐term horizons. Alternatively, deconstructing VIX to find the key S&P 500 options which drive VIX movements leads to a synthetic VIX portfolio that provides a more effective hedge. Using these options captures correlations and returns similar to VIX, and combined with the S&P 500, outperforms the buy‐and‐hold index portfolio.

Date: 2020
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