Volatility trading system design with scaling Risk Management
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1263356815-MIT.pdf
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1.06 MB
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Author(s)
Zhou, Bin,
S.M.
Massachusetts Institute of Technology (2020)
Advisor(s)
Mark P.Kritzman.
Date Issued
2020
Publisher
Massachusetts Institute of Technology
Abstract
We propose a volatility trading system that comprises two uncorrelated components. The first component is astraddle long-short strategy which profits by anticipating changes in the volatility of stocks within the SP 500 Index.The second component is a filtered out-of-the-money put writing strategy on the SP 500 Index which profits by collecting premiums while avoiding losses that would occur during market selloffs by using the Absorption Ratio to detect fragile market regimes. We combine these two components into a portfolio by weighting them in such a way that they contribute equally to total portfolio risk.In addition,we include a dynamic hedging overlay to provide further protection to the portfolio.
Description
Thesis: S.M. in Engineering and Management, Massachusetts Institute of Technology, System Design and Management Program, May, 2020
Cataloged from the official version of thesis.
Includes bibliographical references (page 41).
Subjects
Engineering and Management Program.
System Design and Management Program.
MIT Department
Massachusetts Institute of Technology. Engineering and Management Program
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MIT theses may be protected by copyright. Please reuse MIT thesis content according to the MIT Libraries Permissions Policy, which is available through the URL provided.
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