Studying the Properties of the Correlation Trades

Gea Cayetano

MPRA Paper from University Library of Munich, Germany

Abstract: This thesis tries to explore the profitability of the dispersion trading strategies. We begin examining the different methods proposed to price variance swaps. We have developed a model that explains why the dispersion trading arises and what the main drivers are. After a description of our model, we implement a dispersion trading in the EuroStoxx 50. We analyze the profile of a systematic short strategy of a variance swap on this index while being long the constituents. We show that there is sense in selling correlation on short-term. We also discuss the timing of the strategy and future developments and improvements.

Keywords: dispersion trading; correlation trading; variance swaps; correlation swaps; p&l; pricing; strategies; equity derivatives (search for similar items in EconPapers)
JEL-codes: C60 G2 (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:22318

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