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

 

ABSTRACT:

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.

READ the full paper: The Risks of Volatilty ETNs: A Recent Incident and Underlying Issues

 

 

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s