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White Paper

Understanding the Volatility Risk Premium

The volatility risk premium (VRP) represents the compensation that investors earn for providing protection against market losses. We explain the reasons why it may exist and explore its historical performance with a simple option-selling strategy.

Journal Article

Pathetic Protection: The Elusive Benefits of Protective Puts

Conventional wisdom is that put options are effective drawdown protection tools.

Journal Article

Still Not Cheap: Portfolio Protection in Calm Markets

This paper investigates the relationship between option richness and volatility across 10 global equity indices.

Working Paper

Forecasting the Distribution of Option Returns

We propose a method for constructing conditional option return distributions.

Journal Article

To Trade or Not to Trade? Informed Trading With Short-Term Signals for Long-Term Investors

One of the great frustrations in the asset management profession is to watch trading costs render useless a signal that predicts near-term returns beautifully.

White Paper

PutWrite versus BuyWrite: Yes, Put-Call Parity Holds Here Too

Surprisingly, the CBOE S&P 500 PutWrite Index has outperformed the CBOE S&P 500 BuyWrite Index by around 1.1 percent annually between 1986 and 2015. We explain the mystery behind this outperformance and its implications for portfolio construction.

Interview

Meet the Expert: Roni Israelov on Volatility

AQR Principal Roni Israelov answers questions about the volatility risk premium (VRP), including how it is similar to other alternative risk premia and how AQR implements it.

Trade Publication

Ahead of the Curve: Time to Embrace Downside Risk

Buying equity put options to reduce a portfolio’s downside risk exposure is so attractive that the high cost of doing so all but offsets the benefit, the authors contend.

Journal Article

International Diversification Works (Eventually)

Critics of international diversification observe that it does not protect investors against short-term market crashes because markets become more correlated during downturns.

Journal Article

Combining Empirical Likelihood and Generalized Method of Moments Estimators

This paper presents a new family of estimators for use in statistical estimation and econometrics.