Portfolio Hedging Simulation

1) Delta Hedged Only; 2) With Dynamic RealVol Futures Overlay
3) With Static VolContract Futures Overlay

Select the desired asset and expiration below. Instructions can be found below the charts.

Source of Underlying Data: Commodity Systems, Inc.

Portfolio Hedging Simulation Instructions

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Simulation of Vega and Gamma Hedging an Options Book 

For a complete discussion and explanation of this topic, please see, Volatility Hedging — Turn Up the Static!

This simple simulation is intended to show one use of RealVol futures as a hedge for the volatility exposure of an options book.  The example assumes that the options position is established at the start of the RealVol calculation period (CP) for the quarter selected and is held to expiration.  It is also assumed that the follow-up hedges take place at the daily settlement price of the futures contract and the daily theoretical value of RealVol futures with no commissions or slippage.  The intention of this simulation is not to provide participants with software to enable them to hedge their specific options book, but rather to show the risk-reduction potential of utilizing RealVol futures for this purpose.

This simulation uses up to four calls and four puts together in an options book.  Delta-neutral hedging (green line) makes use of futures contracts only to hedge the directional risk of the options.  A dynamic volatility hedge overlay (pink) is established with three-month RealVol futures, with nightly rebalancing.  A static volatility hedge overlay (blue) is established at the beginning of the period and not touched during the quarter. 

Click the Download Data button to import the current asset data into a spreadsheet, like Excel, or save as a comma delimited file.