I want to design systematic trading strategies that harvest the intermediary risk premium. In what follows, I describe four strategies for trading systematic risk. One can always rescale bets to achieve any desired level of returns by bearing greater risk. The risk of poor returns can be proxied by the volatility of the portfolio returns. Risk premium, ie compensation per unit of risk, is then given by the Sharpe ratio — the ratio of returns in excess of the risk-free rate to the volatility of the portfolio returns.
How to Sell Volatility
How to Sell Volatility
How to Sell Volatility
I want to design systematic trading strategies that harvest the intermediary risk premium. In what follows, I describe four strategies for trading systematic risk. One can always rescale bets to achieve any desired level of returns by bearing greater risk. The risk of poor returns can be proxied by the volatility of the portfolio returns. Risk premium, ie compensation per unit of risk, is then given by the Sharpe ratio — the ratio of returns in excess of the risk-free rate to the volatility of the portfolio returns.