NO.PZ202208100100000303
问题如下：
Ford Tryon is a portfolio manager with Washington Heights, LLC, a hedge fund that invests in equities and fixed-income securities in both cash and derivative instruments. Heights markets itself as a go-anywhere fund that can exploit opportunities across asset classes and geographies. The recent increase in financial market volatility has opened several new opportunities for Tryon to exploit. He has four new trade ideas to discuss with his team, which includes James Bennett, his trader, and Wright Park, an analyst.
Tryon’s first trade is to hedge the interest rate exposure in a US$10 million corporate bond portfolio that has a modified duration of 7.5 years. Although Park is comfortable with the credit exposure of the individual bond positions, Tryon believes interest rates will increase and erode the total return of the portfolio. He proposes hedging the portfolio using Treasury bond futures with a contract size of US$100,000, a price of US$144.20, a modified duration of 8.3 years, and a conversion factor of 0.7455.
Tryon and Bennett discuss their views on emerging market equities. The fund has no exposure to EMs, but they believe that imminent resolution of current global trade tensions will benefit valuations in the near term. They want to use the futures market to express their positive view, because it would take time for Park to do the necessary research and for Bennett to trade the US$10 million they would allocate to this sector. Bennett suggests a cash equitization strategy using futures on the BOVESPA, the Brazilian equity index, which historically has had a 1.15 beta to the broader EM, compared with his 1.0 target EM beta. Bennett gathers data for the BOVESPA futures contract, whose underlying is the BOVESPA Index. The contract price is R$104,465, with a multiplier of 1 and a BRL/USD spot rate of 4.20.
Tryon is long several equity positions based on event-driven ideas that, over the next few quarters, are expected to have double-digit returns. He is concerned, however, that the equity market may decline as a result of lower corporate earnings. He believes investors are complacent as reflected in the historically low level of the volatility index (VIX). He wants to establish volatility exposure as a tail hedge for his holdings and notices the VIX futures curve is in contango. Tryon evaluates three potential trades to establish his hedge:
Trade 1: Go long back-end month futures contracts on the VIX Index, with a gross notional equal to the portfolio market value.
Trade 2: Sell a rolling series of out-of-the-money put options on VIX futures.
Trade 3: Go long a variance swap, with vega notional equal to the potential equity portfolio loss.
The fund owns 10,000 shares of Inwood Industries, Inc., which is currently trading at US$100.00. Bennett believes that Inwood’s next five quarterly earnings reports will miss consensus estimates but, longer term, there is value in the equity given the company’s strong backlog of new products. The shares are very illiquid to trade, so Tryon wants to hedge the position over this time frame without selling the shares. Park suggests three total return equity swaps for Tryon to consider.
Question
Which trade is Tryon most likely to implement to establish his equity market hedge?
选项：
A.
Trade 1
B.
Trade 2
C.
Trade 3
解释：
Solution
C is correct. Variance swaps have a valuable convexity feature—as realized volatility increases (decreases), the positive (negative) swap payoffs increase (decrease)—which makes them particularly attractive for hedging long equity portfolios. Because the volatility curve is in contango—that is, higher volatility is priced into the curve—Trade 1 is likely to experience roll-down losses as the futures price converges or is “pulled down” to the spot price. Trade 2 would benefit from a decrease rather than an increase in volatility; an alternative trade in the options space would be to buy call options to hedge the portfolio.
A is incorrect. Trade 1 is likely to experience roll-down losses as the futures price converges or is “pulled down” to the spot price.
B is incorrect. VIX put options would be bought to profit from an expectation that volatility will decrease because of stable equity market conditions.
中文解析：
本题考察的是VIX futures，VIX options和variance swap。
A选项，题干中说到VIX futures curve是contango的，即远月的合约价格是高于近月合约的，因此如果像trade 1中描述的买远月的合约，随着到期日的临近，合约价格下跌，会有损失，所以该交易不合适。
B选项，也是因为VIX futures curve是contango的，即意味着将来波动率是预测上升的，因此也应该long VIX call options,而不应该是sell VIX put
option，B不对。
C选项，long variance swap，即看涨波动率是合适的。关于vega
notional的金额，因为vega notional表示的含义为：The vega notional represents the average profit and loss of the
variance swap for a 1% change in volatility from the strike，即是一个平均收益或者损失的概念，所以trade 3中后半段的表述也是没有问题的。
“Vega notional equal to the potential equity portfolio loss”是啥意思呢，是说equity portfolio loss可以被variance swap的gain对冲掉吗？，那为什么对冲比例是这样的呢？能举例讲一下吗？比如假设potential equity portfolio loss是5w的话。
