The Risks of Volatility ETNs: A Recent Incident and Underlying Issues

Felix Goltz, Stoyan Stoyanov: This study addresses Volatility ETNs following the Credit Suisse TVIX controversy of early 2012.

Author(s) :

Felix Goltz

Head of Applied Research at EDHEC-Risk Institute.

Stoyan Stoyanov

Professor of Finance at EDHEC Business School and Head of Research at EDHEC Risk Institute–Asia.

Presentation :

Getting volatility exposure has become easier for investors after the relatively recent introduction of volatility ETNs (exchange-traded notes) and volatility ETFs (exchange-traded funds) and some of these products have enjoyed a surge in popularity. In this paper, we use the recent crisis with TVIX – a volatility ETN – to underline important differences between ETNs and ETFs which appear to be at the source of the observed market distortion. We also emphasize an important feature of these products – that they track constant maturity VIX futures indices rather than the VIX index itself – which has an impact on the quality of the volatility exposure because of the roll-over costs and the lack of cash-and-carry arbitrage relationship.
Pdf
The Risks of Volatility ETNs: A Recent Incident and Underlying Issues...
(1.51 MB)
Type : Publication EDHEC
Date : le 25/09/2012
Extra information : For more information, please contact EDHEC Research and Development Department [ research@drd.edhec.edu ]
Research Cluster : Finance

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