Lessons from the stock price correction induced by the volatility market
How did disproportionately aggressive short VIX products make global stock prices plummet with 10% in February? How to properly dose volatility risk premiums to generate an attractive return stream?
This article by German specialist RP Crest discusses how managers again knowingly took too much risk when handling third-party assets in aggressively structured short vol products like “XIV & Co”. They discuss which mechanisms can be installed to ensure a better alignment of interests between investors and managers to offer volatility risk premium products that make sense in the long run.