Active Volatility Management is a process or system that aims to actively manage the volatility of an investment portfolio.
Active Volatility Management attempts to direct, control, or limit the amount of volatility in a portfolio.
Active Volatility Management may be a type of tail risk hedge for a portfolio with high market risk.
Since volatility and correlations are unstable over time, volatility and correlation between markets can reach extremes when market risks are high or even when risk doesn’t appear to be high.
Active Volatility Management systems measure the amount of market risk a portfolio is exposed to and constructs a method to reduce exposure or hedge with long volatility positions.
Active Volatility Management systems that use volatility trading may be designed as a portfolio tail risk hedge only with no attempt to be profitable on its own, or as a system that attempts to create its own positive return stream.
Active Volatility Management systems may be adjusted daily or less frequent.
Keywords: Active Volatility Management, tail risk hedge, volatility trading, VIX trading, VIX hedging.
Also see Active Risk Management