The document discusses using rates vega selection strategies as an overlay to other investments to provide tail risk hedging. Specifically, it finds that a strategy of going long volatility in rates markets outperforms traditional tail risk hedging funds, provides positive returns during normal times without significant drag, and increases in value during periods of market stress. The document also examines using rates vega selection strategies combined with other assets like credit, equities, and volatility selling strategies to improve risk-adjusted returns.
MODULE 4:
Market Risk (includes asset liability management)
Yield Curve Risk Factor-Domestic and global contexts-handling multiple risk factor-principal component analysis- value at Risk (VAR) – implementation of a VAR system- Additional Risk in fixed income markets-Stress testing- Bank testing.
MODULE 4:
Market Risk (includes asset liability management)
Yield Curve Risk Factor-Domestic and global contexts-handling multiple risk factor-principal component analysis- value at Risk (VAR) – implementation of a VAR system- Additional Risk in fixed income markets-Stress testing- Bank testing.
LTCM's case in 1998 would be presented in this slide.
It's my mid-term project at NCCU, Money and Banking department, for the course of " Option- Theory and Application. "
Dear All,
It contains plenty of useful and valuable information about Forex. Please do not hesitate to contact me directly for more information.
Regards
Dr. Hamed Faghiri
Mansfield Capital Brochure Ppt Mar2009 1110Trader1mm
Mansfield Capital PowerPoint
presentation showing aggregate performance since 2003 with low-volatility program also shown separately. Note: due my institutional client going out of business last year, and for personal reasons, I took a year off off from trading even though I had top rated performance on risk-adjusted basis. Call or write for details. MansfieldCapital@Gmail.com, or 305-915-3307
LTCM's case in 1998 would be presented in this slide.
It's my mid-term project at NCCU, Money and Banking department, for the course of " Option- Theory and Application. "
Dear All,
It contains plenty of useful and valuable information about Forex. Please do not hesitate to contact me directly for more information.
Regards
Dr. Hamed Faghiri
Mansfield Capital Brochure Ppt Mar2009 1110Trader1mm
Mansfield Capital PowerPoint
presentation showing aggregate performance since 2003 with low-volatility program also shown separately. Note: due my institutional client going out of business last year, and for personal reasons, I took a year off off from trading even though I had top rated performance on risk-adjusted basis. Call or write for details. MansfieldCapital@Gmail.com, or 305-915-3307
How effective is your method of managing portfolio risk? We compare and contrast different approaches – including fixed income, managed futures, low volatility equities, and tactical – to explore the relative protection they can deliver versus the return drag they can create.
Based on the Halliburton Company stock forecast from 12 analysts, the average analyst target price for Halliburton Company is USD 43.34 over the next 12 months. Halliburton Company’s average analyst rating is Strong Buy. Stock Target Advisor’s own stock analysis of Halliburton Company is Neutral, which is based on 8 positive signals and 7 negative signals. At the last closing, Halliburton Company’s stock price was USD 29.81. Halliburton Company’s stock price has changed by +20.98% over the past week, +0.98% over the past month and +29.67% over the last year.
WELL Stock Forecast & Price:
Based on the Welltower Inc stock forecast from 17 analysts, the average analyst target price for Welltower Inc is USD 89.19 over the next 12 months. Welltower Inc’s average analyst rating is Strong Buy. Stock Target Advisor’s own stock analysis of Welltower Inc is Bearish, which is based on 3 positive signals and 12 negative signals. At the last closing, Welltower Inc’s stock price was USD 57.84. Welltower Inc’s stock price has changed by -1.30% over the past week, -20.57% over the past month and -31.23% over the last year.
This document explains our strategy to perform a UCITS 5 fund with an active VIX Future management. An example of our strategy is the track record of New Millennium Volactive fund
Market Risk And Return PowerPoint Presentation Slides SlideTeam
Presenting this set of slides with name - Market Risk And Return Powerpoint Presentation Slides. Our topic specific Market Risk And Return Powerpoint Presentation Slides presentation deck contains twenty eight slides to formulate the topic with a sound understanding. This PPT deck is what you can bank upon. With diverse and professional slides at your side, worry the least for a powerpack presentation. A range of editable and ready to use slides with all sorts of relevant charts and graphs, overviews, topics subtopics templates, and analysis templates makes it all the more worth. This deck displays creative and professional looking slides of all sorts. Whether you are a member of an assigned team or a designated official on the look out for impacting slides, it caters to every professional field.
The Lovesac Company designs, manufactures, and sells furniture. It offers sactionals, such as seats and sides; sacs, including foam beanbag chairs; and accessories comprising drink holders, footsac blankets, decorative pillows, fitted seat tables, and ottomans.
Based on the The Lovesac Company stock forecasts from 5 analysts, the average analyst target price for The Lovesac Company is USD 105.29 over the next 12 months. The Lovesac Company’s average analyst rating is Strong Buy. Stock Target Advisor’s own stock analysis of The Lovesac Company is Bullish , which is based on 10 positive signals and 4 negative signals. At the last closing, The Lovesac Company’s stock price was USD 31.82. The Lovesac Company’s stock price has changed by -12.46% over the past week, -15.12% over the past month and -65.18% over the last year.
This presentation will take you through Emperor Asset Management's investment philosophy and track record. It also touches on wealth management with a short explanation of how to calculate your wealth index.
"Argo Group’s second quarter results demonstrate continued momentum in the first half of 2015," said CEO Mark E. Watson III. "The improvement in our underwriting income is a direct result of the ongoing focus on underwriting as well as a disciplined approach to profitable growth in our niche markets.”
Julia Butler - The Fiduciary Group - Best Practices for Meeting Fiduciary Dut...Downey Brand LLP
In her presentation at the 2015 Savannah Fiduciary Seminar, Julia Butler of the Fiduciary Group describes how plan sponsors, trustees, and investment committees can best meet their fiduciary duties to manage the plan’s investments. She outlines what should be in an effective Investment Policy Statement, and lays out the fiduciary processes to select, monitor, and replace the plan’s investment options. She also explains how a Section 3(38) fiduciary investment advisor can significantly reduce or eliminate a plan sponsor’s fiduciary liability for plan investments.
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Every organization needs to adapt to the ever-changing business environment. Sensing this need, we have come up with these content-ready change management PowerPoint presentation slides. These change management PPT templates will help you deal with any kind of an organizational change. Be it with people, goals or processes. The business solutions incorporated here will help you identify the organizational structure, create vision for change, implement strategies, identify resistance and risk, manage cost of change, get feedback and evaluation, and much more. With the help of various change management tools and techniques illustrated in this presentation design, you can achieve the desired business outcomes. This business transition PowerPoint design also covers certain related topics such as change model, transformation strategy, change readiness, change control, project management and business process. By implementing the change control methods mentioned in the presentation, you will be able to have a smooth transition in an organization. So, without waiting much, download our extensively researched change management framework presentation. With our Change Management Presentation slides, understand the need for change and plan to go through it without any hassles.
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
2. Swaptions to choose from: USD, EUR;
Expiries 5y, 10y, 20y; Tenors: 2y, 5y, 10y, 20y, 30y.
Signal: Carry (i.e., highest carry) – 6m z-score of 6m vol carry
going long two highest in USD and EUR
Trading-Frequency: 1m , Horizon: 6m
Hedging:
Delta-hedging: with 0.1 Delta Threshold, Weekly
Annuity/Premium Hedging: One time at trade start for USD, Weekly for EUR
Notional Scaling: Scaled by vega and by strategy performance to date
Rates vega select
Source: Nomura. Past performance is not a reliable indicator of future results.
Using a signal and delta-thresholds to reduce total trades and outperform aggregate
1
Historical Performance
Strategy rules
Since
Inception 5Y 3Y 1Y
Average Return (p.a.) 6.66% 1.01% 3.21% -5.54%
Volatility (p.a.) 10.65% 6.52% 6.48% 4.51%
Sharpe Ratio 0.63 0.15 0.49 -1.23
Max Drawdown 19.60% 11.93% 10.55% 6.78%
% of Positive Months 49% 41% 43% 31%
Skewness 2.08 0.88 1.14 0.41
Strategy Performance
90
180
Feb-2005 Feb-2006 Feb-2007 Feb-2008 Feb-2009 Feb-2010 Feb-2011 Feb-2012 Feb-2013 Feb-2014 Feb-2015 Feb-2016 Feb-2017
Cumulative
returns
3. 2
Source: Nomura
• Most crash insurance is
• Too expensive, bleeding away in between crises, with only small rallies during crisis events
• Rates Vega Select
• Positive Carry – Buying swaptions has positive carry unlike options in Equities, FX, commodities
• Benefits from macroeconomic shocks
• Convexity of strategy is comparable to that of 50y bonds
• Rates vega select has key benefits
• Can be delivered as a program of standard trades
• Right tailed – Superior responsiveness – Buffering Economic shocks
• Decent returns
• Works well in overlays
Tail risk hedging costs an arm and a leg – Rates vega select doesn’t
Executive Summary
5. 4
Source: Mother Jones, Guardian, Getty, Coliseum.Europa.eu, Random House
Uncertainty abounds
Tail risks = major problem
6. EurekaHedge CBOE Tail Risk Fund and Rolling low strike (1y SPX puts 95%), cumulative returns
Tail risk funds are meant to hedge tail risk
Source: Nomura, Bloomberg, Tail Risk Fund Index = Eurekahedge Tail Risk Index (excess returns). Put Chart shows realised returns of buying and holding 1y 95% puts on the S&P 500.
Past performance is not a reliable indicator of future results.
Almost all bleed away premium, and the hedging performance suffers. Sad!
5
50
100
2007 2008 2009 2010 2011 2012 2013 2014 2015
Cumulative
returns
Tail Risk Fund Index S&P500 Puts
7. Rates vega select compares favorably to tail risk funds
* Returns from 2007-Present (matching EurekaHedge sample). Scaled to 10% vol.
Source: Nomura, Bloomberg, Eurekahedge (EHFI453 Index). Past performance is not a reliable indicator of future results.
Rates vega select outperforms tail risk funds at all times except during largest shocks, so why bother with
them?
6
Much higher returns with slightly lower skewness* Rates vega select outperforms tail risk funds
Performance (vol-scaled) bucketed by VIX quintiles
60
120
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Cumulative
returns
Rates vega select EurekaHedge CBOE Tail Risk Index
Rates vega select
EurekaHedge CBOE
Tail Risk Index
Average return (p.a.) 6.82% -3.44%
Volatility (p.a.) 10.00% 10.00%
Sharpe ratio 0.68 -0.34
Max draw dow n 11.13% 44.93%
Calmar ratio 0.61 -0.08
Skew ness 2.08 4.28
-30%
-20%
-10%
0%
10%
20%
30%
40%
Falling 2 3 4 Rising
Annualised
return
VIX change quintile (monthly)
Rates vega select EurekaHedge CBOE Tail Risk Index
8. Using Rates vega select as an overlay
Adding vol protection as a hedge is a win-win
9. Sensitivity to macroeconomic shocks
*Scaled to 10% vol. Daily calculations (except where noted) since inception – Feb 2005
Source: Nomura, Bloomberg. Past performance is not a reliable indicator of future results.
Rates vega select has greater sensitivity than other more common hedges, while offering diversification*
8
Vega offers diversification possibilities (monthly correlations) Vega select shows greater sensitivity to VIX spikes (daily)
S&P500
Euro
stoxx 50
G4 govt
futures
Cross asset
momentum
Rates vega
select
S&P500 1.00 0.82 -0.25 -0.31 -0.50
Euro stoxx 50 0.82 1.00 -0.27 -0.23 -0.42
G4 govt futures -0.25 -0.27 1.00 0.11 0.28
Cross asset
momentum
-0.31 -0.23 0.11 1.00 0.40
Rates vega select -0.50 -0.42 0.28 0.40 1.00
S&P500
Euro
stoxx 50
G4 govt
futures
Cross asset
momentum
Rates vega
select
Average return (p.a.) 3.88% 2.61% 6.36% 10.76% 6.26%
Volatility (p.a.) 10.00% 10.00% 10.00% 10.00% 10.00%
Sharpe ratio 0.39 0.26 0.64 1.08 0.63
Max drawdown 36.93% 33.96% 25.77% 13.18% 18.49%
Calmar ratio 0.11 0.08 0.25 0.82 0.34
Skewness -0.78 -0.44 0.01 1.27 2.07
-30%
-20%
-10%
0%
10%
20%
30%
40%
Falling 2 3 4 Rising
Annualised
return
VIX change quintile (monthly)
S&P500 Euro stoxx 50
G4 govt futures Cross asset momentum
Rates vega select
10. Rates vega select is excellent overlay to credit
* JNK US Equity only has performance data from 2007. Scaled to 10% vol.
Source: Nomura, Bloomberg. Past performance is not a reliable indicator of future results.
• US High Yield ETF (JNK US Equity) is effectively long similar
risk to equities
• Vega overlay (100%) mitigates some of the major macro risk
which the HY index is subject to, downside, enhancing returns,
significantly reducing drawdowns, resulting in positive
skewness.
US high yield bond overlay
9
Historical Cumulative Returns (US HY + Rates vega select) Key points
Performance (Since 2007*)
60
120
240
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Cumulative
returns
(vol-scaled
=
10%)
Rates vega select US High Yield Overlay
Rates vega
select
US High Yield Overlay
Average return (p.a.) 6.81% 4.06% 8.85%
Volatility (p.a.) 10.00% 10.00% 10.00%
Sharpe ratio 0.68 0.41 0.88
Max drawdown 17.01% 30.95% 13.12%
Calmar ratio 0.40 0.13 0.67
Skewness 2.06 -0.46 1.37
11. Rates vega select is excellent overlay to hedge funds
* Scaled to 10% vol. Monthly Returns since Inception (Feb 2005)
Source: Nomura, Bloomberg. Past performance is not a reliable indicator of future results.
• HFRI index is sometimes long beta and sometimes long bonds.
• Vega overlay (100%) mitigates some of the HF downside,
enhancing returns, and reducing the negative skewness.
Rates vega
select
HFRI Index Overlay
Average return (p.a.) 6.01% 5.04% 9.68%
Volatility (p.a.) 10.00% 10.00% 10.00%
Sharpe ratio 0.60 0.50 0.97
Max drawdown 11.95% 38.57% 19.12%
Calmar ratio 0.50 0.13 0.51
Skewness 2.08 -1.02 0.79
80
160
320
Cumulative
returns
(vol-scaled
=
10%)
Rates vega select HFRI Index Overlay
Hedge fund overlay
10
Historical Cumulative Returns (HFRI Index + Rates vega select) Key points
Performance (Since Inception) – monthly returns*
12. Hedging risky indices
* Scaled to 10% vol
Source: Nomura, Bloomberg. Past performance is not a reliable indicator of future results.
Rates vega select* performs well when SPX, SX5E, MSCI World and HY underperform
11
S&P 500 EuroStoxx 50
US High Yield (JNK US Equity) MSCI World
-40%
-20%
0%
20%
40%
60%
Worst 2 3 4 Best
Annualised
return
S&P500 return quintile
S&P500 Rates vega select
-60%
-40%
-20%
0%
20%
40%
60%
Worst 2 3 4 Best
Annualised
return
Euro stoxx 50 return quintile
Euro stoxx 50 Rates vega select
-60%
-40%
-20%
0%
20%
40%
60%
Worst 2 3 4 Best
Annualised
return
US High Yield ETF return quintile
US High Yield Rates vega select
-60%
-40%
-20%
0%
20%
40%
60%
Worst 2 3 4 Best
Annualised
return
MSCI World return quintile
MSCI World Rates vega select
13. Alternatives overlay: Rates vega select as MSCI World
overlay
*Scaled to 10% vol.
Source: Nomura, Bloomberg. Past performance is not a reliable indicator of future results.
• Rates Vega overlay helps mitigate the downside risk of equity
market and delivers higher risk adjusted return. It improves the
equity drawdowns and shifts the return distribution to positive
skewness.
MSCI World overlay
12
Historical Cumulative Returns (MSCI World + Rates vega select) Key points
Performance (Since Inception) *
60
120
240
cumulative
return
(vol-scaled
=
10%)
Rates Vega Select MSCI World Excess Return Overlay
14. Drawdowns compared – MSCI World Excess Return and
Rates vega select
- Scaled by volatility, Rates vega select has fewer drawdown than MSCI world for all the buckets
13
Both indices are scaled to 10% vol
Source: Nomura, Bloomberg. Date Range: 22 February 2005 to 05 May 2017 Past performance provides no guarantee of future results
29
46
89
231
501
1 6
19
75
408
15. Drawdowns combining MSCI World Excess Return and
Rates vega select
- During MSCI World Index tail events, Rates vega select rallied correspondingly and consistently, providing
downside protection to the shortfall
14
Both indices are scaled to 10% vol
Source: Nomura, Bloomberg. Date Range: 22 February 2005 to 05 May 2017 Past performance provides no guarantee of future results
16. Case Study – 2015 China Devaluation
15
Source: Nomura, Bloomberg. Date Range: 22 February 2005 to 19 April 2017 Past performance provides no guarantee of future results
92
94
96
98
100
102
17-Aug-15 18-Aug-15 19-Aug-15 20-Aug-15 21-Aug-15 22-Aug-15 23-Aug-15 24-Aug-15
cumulative
return
(vol-scaled
=
10%)
Rates Vega Select MSCI World Excess Return
2.18%
-5.62%
17. Case Study – Brexit
16
Source: Nomura, Bloomberg. Date Range: 22 February 2005 to 19 April 2017 Past performance provides no guarantee of future results
95
96
97
98
99
100
101
102
23-Jun-16 24-Jun-16 25-Jun-16 26-Jun-16 27-Jun-16
cumulative
return
(vol-scaled
=
10%)
Rates Vega Select MSCI World Excess Return
1.96%
-4.36%
18. Overlay on vol selling strategies
Long vega works well with short gamma
17
19. Alternatives overlay: Rates Vega Select as an iVRP overlay
* iVRP Index is subject to internal reviews and approvals prior to being available for investment by third parties. ** Scaled to 10% vol.
Source: Nomura, Bloomberg. Past performance is not a reliable indicator of future results.
• Short gamma (interest rate Volatility Risk Premia) strategy
produces steady stream of returns with large drawdowns from
gamma exposure from systematic selling of short-dated
swaptions.
• Vega overlay (100%) mitigates some of this downside,
enhancing returns, and eliminating the negative skewness.
Rate short gamma index (iVRP*) overlay
18
Historical Cumulative Returns (iVRP Western + Rates vega select) Key points
Performance (Since Inception) **
60
120
240
480
Cumulative
returns
(vol-scaled
=
10%)
Rates vega select iVRP Western Overlay
Rates vega
select
iVRP
Western
Overlay
Average return (p.a.) 6.26% 12.55% 17.00%
Volatility (p.a.) 10.00% 10.00% 10.00%
Sharpe ratio 0.63 1.25 1.70
Max drawdown 18.49% 41.59% 16.15%
Calmar ratio 0.34 0.30 1.05
Skewness 2.07 0.94 1.94
20. Alternatives overlay: Rate Vega Select as an eVRP overlay
* Scaled to 10% vol.
Source: Nomura, Bloomberg. Past performance is not a reliable indicator of future results.
• eVRP (Equities Volatility or Variance Risk Premia) strategy
produces a steady stream of returns with some sharper
drawdowns typically coinciding with SPX drops.
• While it is not possible to anticipate these drawdowns, some
downside can be mitigated.
• Vega overlay (100%) reduces some of this downside,
enhancing returns, lowering the negative skewness.
Equity short variance swap overlay
19
Historical Cumulative Returns (eVRP + Rates vega select) Key points
Performance (Since Inception) *
80
160
320
Cumulative
returns
(vol-scaled
=
10%)
Rates vega select eVRP Overlay
Rates vega
select
eVRP Overlay
Average return (p.a.) 6.26% 6.76% 10.24%
Volatility (p.a.) 10.00% 10.00% 10.00%
Sharpe ratio 0.63 0.68 1.02
Max drawdown 18.49% 22.81% 13.60%
Calmar ratio 0.34 0.30 0.75
Skewness 2.07 -3.25 1.56
21. Rates vol: macro-risk protection with positive carry
Downward sloping vol surfaces give rates vega positive carry
22. Long dated swaption vol is (mostly) downward sloping
Source: Nomura, 21-Jan-2017, JPY 25y and 30y tails are highly illiquid
Long dated swaptions can make up for time value by positive vol roll
21
USD — positive vol carry EUR – positive vol carry JPY – uncertainty in the distant future
0
10
20
30
40
50
60
70
80
90
0 10 20 30
Volatility
(bps)
Expiry (years)
1Y 2Y
5Y 10Y
15Y 30Y
0
10
20
30
40
50
60
70
80
90
0 10 20 30
Volatility
(bps)
Expiry (years)
1Y 2Y
4Y 9Y
15Y 30Y
0
10
20
30
40
50
60
70
80
90
0 10 20 30
Volatility
(bps)
Expiry (years)
2Y 5Y
10Y 20Y
25Y 30Y
Negative vol carry +
Negative Time Value
Positive vol carry
Positive vol carry
23. FX and Equities volatility
Source: Nomura, Bloomberg
Pricing in a more uncertain future – long dated options lose on time value and on vol-roll
22
Equities vols - the world is more uncertain in the distant future Most FX Vols are upward sloping
5
10
15
20
25
30
0 5 10 15 20
Volatility
(%)
Expiry (years)
EUR
GBP
EURJPY
5%
10%
15%
20%
25%
30%
0 5 10 15 20 25 30
Volatility
(%)
Expiry (years)
S&P500 Vol
EuroStoxx-50
Vol
Negative Vol carry +
Negative Time value
Negative Vol carry +
Negative Time value
24. • Long Dated Rate Forwards
← only scalable strategy
• Long-dated WTI
• Natural Gas
• Power Futures
• Agricultural Futures
• VIX
• Most everything in distress
• Short Dated Rates Forwards
• JPY Rates
• Money-market Futures
• Metals Futures
• Equities
• Foreign Exchange
Do other vol surfaces have downward slopes?
Source: Duong-Kalev,, The Samuelson hypothesis in futures markets: An analysis using intraday data, J Bank Finance, Vol 32 (Apr 2008) and
Back-Prokopczuk, Commodity Price Dynamics and Derivatives Valuation: A Review, SSRN, Aug 21, 2012
Select few asset-classes pay for buying protection (see Appendix)
23
Downward Vol Slopes Upward Vol Slopes
26. 25
Source: Nomura
• Rates unlike FX and Equities, can have downward sloping vol curves
• JPY is different
• For long dated swaptions, positive vol-roll can outweigh time-value
• Long expiry rates swaptions:
• Positive carry
• Long volatility, long event risk
Rates swaptions – Long event risk with positive carry
Key takeaways
28. 27
Source: Nomura
• Define universe of eligible swaptions
• Buy swaptions regularly
• Hedge curve exposure – choose reasonable and infrequent hedge to minimize transaction costs
• Roll regularly – longer holding horizons to minimize transaction costs
• Use signal to replicate and outperform
• Measure performance and reactiveness
Goals for the strategy
29. • Include
• 5y, 10y, 20y expiries
• 2y, 5y, 10y, 20y, 30y tenors
• We eliminate illiquid 30y expiries which have tiny
trading volume
• We consider 2y expiries, arguably not in the vega
part of the surface
• Trade most commonly traded swaptions:
• ATMs at trade start (most liquid)
• Standard market convention (USD: Swap-settle,
Semi/Quarterly 3m LIBOR, EUR: Cash-settle
Annual/Semi 6m EURIBOR)
The universe of long-dated vol trades
Source: Nomura
Focus on broad range of vols for program trading
28
Most liquid, most conventional Eliminate less useful vols
Vols for vega strategy (USD and EUR)
Tenors
2 5 10 20 30
Expiries
2
5
10
20
30
30. Performance of individual vol points
Source: Nomura. Past performance is not a reliable indicator of future results.
• 5Y and upwards have decent returns since inception
• 2Y expiries are a significant drag and are dropped
• We can easily include all (liquid) vols with expiries
greater than 5y
• We eliminate illiquid 30y expiries
• Total of 15 swaptions / currency or 30 swaptions in
universe for Aggregate
• Note:
• Hedge netting, diversification, and signals can
improve on any single strategy
• Details of hedging mechanism and signal given in
appendix
Vega scaled, weekly delta-hedged, annuity & forward premium hedged strategies
29
Rationale Sharpe Ratios Since Inception (USD)
Sharpe Ratios Since Inception (EUR)
Currency USD USD USD USD USD
Tenure 2y 5y 10y 20y 30y
Expiry
2y 0.15 0.09 -0.09 -0.09 -0.05
5y 0.20 0.18 0.24 0.30 0.30
10y 0.42 0.47 0.39 0.44 0.46
20y 0.30 0.33 0.38 0.40 0.39
30y 0.13 0.17 0.19 0.20 0.38
Currency EUR EUR EUR EUR EUR
Tenure 2y 5y 10y 20y 30y
Expiry
2y 0.18 0.06 -0.14 -0.08 -0.05
5y 0.27 0.27 0.27 0.39 0.43
10y 0.34 0.39 0.42 0.52 0.57
20y 0.40 0.44 0.46 0.50 0.49
30y 0.31 0.33 0.34 0.32 0.28
32. Rates vega select offers higher convexity than swaps
Source: Nomura. Past performance is not a reliable indicator of future results.
Comparing convexity of vega to the dv01-neutral 30s50s flattener
31
USD rates— Vega is more convex on average EUR rates — Vega is more convex on average
33. Rates vega select offers higher convexity than swaps
Source: Nomura. Past performance is not a reliable indicator of future results.
Comparing rates vega select convexity to the 50y
32
Convexity snapshot as of Jan 2017 Empirical (average) convexity since inception
0
1
2
3
4
5
6
7
50y swap Rates vega 50y swap Rates vega
USD EUR
Convexity
0
5
10
15
20
30s50s Rates vega 30s50s Rates vega
USD EUR
Empirical
convexity
36. 35
Source: Nomura
Tail Risk funds
Hedge inconsistently
Have large negative drag
Never truly pay back
Rates vega select is one of the few strategies
Almost pure vol risk with positive carry
Right-tailed, performs well in risk-off markets
Pays for itself – reasonable returns the rest of the time
High convexity
Buying insurance shouldn’t cost an arm and a leg— Vega gives you insurance with reasonable returns
Rates vega select as cheap “insurance”
38. 37
Source: Nomura
vega charge
2y 5y 10y 20y 30y
5y 0.5 0.5 0.5 0.5 0.5
10y 0.5 0.5 0.5 0.5 0.5
20y 0.5 0.5 0.5 0.5 0.6
All backtests are net of the following transaction costs
Transaction costs and cashflows are internal to strategy
delta charge is 0.5bp for all
expiries/tenures
• Strategy incurs the following charges:
• Vol charge for each swaption upon entry
• Vol charge for each swaption upon exit
• Delta charge for each forward swap
hedge
• Delta charge for each annuity and
forward premium hedge (net) using 2
spot swaps total per currency
• Delta charge for each annuity and
forward vol hedge unwind
• Delta charge for each forward swap
unwind
• Spot swaps’ fixed/float payments accrue at
OIS rate flat on both sides
40. 39
Source: Nomura
• Vega Universe
• Define universe of liquid vega trades
• Determine areas of significant performance (Sharpe, ‘responsiveness’, skewness, etc).
• Aggregate Strategy
• Determine Structural parameters: Weighting, Holding horizon, Trade Frequency
• Create Hedging Strategy
• Appropriate Curve Risk Hedging (Annuity + Forward Premium)
• Appropriate Black-Scholes Delta Hedging, exploring thresholds and target deltas
• Create non-tradable Benchmark Aggregate Strategy
• Signal-based trading
• Carry selection: use carry signal to select portfolio of 2 swaptions / currency / month
• Weight and hedge the same way as benchmark aggregate
• Determine performance relative to benchmark (Sharpe, responsiveness, skewness)
• Create tradable Rates vega select
Goals: Define universe
41. 40
Source: Nomura
After hedges, remaining terms are Time-Carry and Vol-Carry (and Gamma-carry which we ignore)+
Where does positive carry come from?
Curve Risks are effectively hedge-able using combination of
forward starting swaps and spot-starting swaps
� � �� = ⋅ � �
= , �, �,
� � = � � � �
Expanding BS into hedge-able and other terms
= BS + � + � � + 2 + ⋯
� � �� = ⋅ + ⋅
� � �� = ⋅ BS + ⋅
�
� �
� / �
+ ⋅ �
� � �
+ ⋅ � �
� � �
+ �2
� � � �
What
theoretically
remains after we
hedge
42. 41
Source: Nomura
We consider a straddle with expiry T on a swap with maturity � and swap rate . The payoff is
� = � � � ⋅ | − �|.
Evaluating this at time t, we get, using the Black-Scholes formula:
�� � � = � � ⋅ �� ≝ ⋅ ��
If this swaption is forward settle, it has one extra cash-flow to give initial PV of 0 and lowers the initial curve
dependence. We can also consider a running premium to lower overall curve dependence.
PV of the package is given by
�� � �� = �� � � − �� = ⋅ �� − �� 0 ,
Hedging curve risk , we get the following terms
��� �
� � = ⋅
� − ℎ �
+
�
� � ⋅ ��
� � �
− �� 0
� ,
� �
� � �
We manage Black-Scholes Delta quite actively using matched forwards.
Annuity / Forward Premium Risks are curve risks and we can hedge at trade start.
Leaves behind vega and time and gamma returns
Black-Scholes Delta hedge and an Annuity and Forward Premium Hedges
Hedging curve risk of vega strategies
43. What curve exposures should we hedge?
Source: Nomura
Vega-trading is not like gamma-trading – we must hedge the annuity too. Initial curve delta is non-zero
42
Gamma Trading (iVRP) – USD 1m10y risk breakdown, November 2009 (initial premium 266ct)
Vega Trading (Rates vega select) – USD 10y10y risk breakdown, November 2009 (initial premium 1252ct)
-600%
-400%
-200%
0%
200%
400%
600%
800%
1000%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Percentage
of
Notional
Trade age (days)
Annuity risk BS risk
-30%
-20%
-10%
0%
10%
20%
30%
40%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
Percentage
of
Notional
Trade age (days)
Annuity risk BS risk
Very Actively hedged
Unhedged
Less actively hedged
Hedged once
44. 43
Source: Nomura. Past performance is not a reliable indicator of future results.
USD 10y20y swaptions – Proper hedge decreases correlations to rates and increases correlations to
volatilities
Fine-tuning sensitivities – lower curve and higher vol
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
Δforward (bp) Δvol (bp vol)
Correlation
to
returns
Option Delta hedged Delta and annuity hedged
Note: rates and vols may be correlated in-
sample, depending on expiry, tenor and market
circumstances
45. Hedging strategy + signal improves performance
* Scaled to 10% vol.
Source: Nomura. Past performance is not a reliable indicator of future results.
Weekly hedging + carry-based signal
Less transaction costs, less hassle, better performance
44
Performance improvements * Hedging strategy (weekly Δ target) + Signal Performance
80
160
Cumulative
returns
Rates vega agg (daily deltahedge)
Rates vega agg (weekly delta hedge)
Rates vega select
Rates vega agg
(daily delta
hedge)
Rates vega agg
(weekly delta
hedge)
Rates vega
select
Average return (p.a.) 3.42% 4.62% 6.26%
Volatility (p.a.) 10.00% 10.00% 10.00%
Sharpe ratio 0.34 0.46 0.63
Max drawdown 22.51% 21.19% 18.49%
Calmar ratio 0.15 0.22 0.34
Skewness 0.96 1.42 2.07
Backtest info
Hedging frequency 1d 1w 1w
Delta threshold 0 0.1 0.1
Delta target 0 0.1 0.1
Indicator 6m vol carry
Signal 6m z-score
46. 45
Source: Nomura
Rates vega select: Monthly Trade Frequency
Carry signal - rank trades by 6-month z-score of 6-month vol carry
Pick two highest carry trades per currency
Notional is Vega-weighted, compounded by overall strategy performance
Hold for 6m and unwind (2 x 2 x 6 = 24 swaptions )
Hedges divided into two buckets:
• Weekly Black-Scholes hedge: Delta hedge Black-Scholes risk from trade start to trade unwind
• Using appropriate matched (dated) forward for each swaption
• Weekly hedge frequency
• Delta threshold and Delta target – hedge only if swaption |Delta|>0.1
• Non-Black-Scholes Hedge:
• USD
• One time hedge: determine Annuity/Forward Premium (initial curve risk) at trade start
• Hedge with spot swaps for life of trade (6M), accrue cash at OIS rate
• EUR
• Hedge with matched forward swaps at trade start, as well as the same timing as Black-Scholes hedge
• Netting of transactions for cost savings
Rates vega select: hedging and signal
Goal: Exceed aggregate performance with fewer swaptions
48. 47
Source: Bank of England, Moneyweek, Bloomberg
The view from the P-measure – rates, unlike equities and fx, mean revert….
…..but we care more about risk-neutral measure
Rates mean-revert over long horizons,
Equities & FX do not
0
2
4
6
8
10
12
14
16
18
BOE Bank Rate (1700-2016)
1
10
100
1000
10000
100000
1930 1935 1940 1945 1951 1956 1961 1966 1972 1977 1982 1987 1993 1998 2003 2008 2014
S&P 500 total return (log scale)
Equities trend over longer horizons
Rates “mean-revert” over longer horizons
49. EUR, USD and JPY Forward slope vs Spot (10y) correlations and 10y tails
Rates mean-revert in the Q-measure too
Source: Nomura, Bloomberg
Downward sloping vol surfaces – the market’s take on mean-reversion – in Q-measure
Slope and Levels negatively correlated → downward sloping vols
48
-25
-20
-15
-10
-5
0
5
10
15
20
25
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
6m 1y 5y 10y 20y
Average
vol
surface
(in
bp
relative
to
3m10y)
Correlation
of
slope
to
spot
JPY_correl EUR_correl USD_correl
Avg JPY 10y Tail Avg EUR 10y Tail Avg USD 10y tail
Positive Correlation
Vol Slopes Up
“Trending”
Bull Flatten/Bear Steepen
Negative Correlation
Vol Slopes Down
“Mean-Reverting”
Bull Steepen/Bear Flatten
50. Negative correlation between changes in spot and
calendar spreads, i.e.,
Corr[ΔSpot , ΔF(T) —ΔSpot ] < 0
i.e., curve ‘more contango’ when spot is high and ‘more
backwardated’ when spot is low. This is known as the
‘Samuelson Hypothesis’
• Long-dated WTI (past 5 years)
• NatGas (past 5 years)
• Power Futures
• Agricultural Futures
• VIX
Positive correlation between changes in spot and
calendar spreads, i.e.,
Corr[ΔSpot , ΔF(T) —ΔSpot ] >= 0
i.e., curve is unch or ‘more backwardated’ when spot is
high and unch or ‘more contango’ when spot is low
• Energy (1995-2000)
• Metals Futures
• Financial Futures (i.e., short dated rates futures, short-
dated bond futures)
Commodity vol – downward vs upward sloping
Source: Duong-Kalev, The Samuelson hypothesis in futures markets: An analysis using intraday data, J Bank Finance, Vol 32 (Apr 2008)
And Back-Prokopczuk, Commodity Price Dynamics and Derivatives Valuation: A Review, SSRN, Aug 21, 2012
Select few asset-classes pay for buying protection
49
Downward Sloping Vol Upward Sloping Vol
51. • Variance and volatility
• For a random walk, k-day variance ≈ k×1-day
variance.
• Implied volatility is already annualized
• So if volatility is flat ⇒ Random walk
• If volatility is upward sloping ⇒ Explosive process
• If volatility is downward sloping ⇒Mean-reverting
process
Why do negative correlations lead to mean-reversion?
Source: Nomura
50
0 5 10 15 20 25 30
Volatility
(bp)
Expiry (years)
Annualized Vol for Mean-reverting vs Trending Rates
Vol for Mean-reverting processes
Vol for Random Walk
Vol for explosive processes
• Correlation ρ(ΔSpot, Δ (Forward(Long)-Forward(Short) ) < 0
• “Bear Flattening”/”Bull Steepening”
• When spot is high, Forwards = slope lower
• When spot is low, Forwards = slopes higher
• Effectively this is the same as mean reversion (only in the risk-neutral measure)
52. Disclaimer
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