Panel on Trends in Institutional Options and Volatility Product Usage

The first session after lunch today at the CBOE Risk Management Conference in Geneva featured a panel discussion about Institutional Option and Volatility Product Usage.  The panel was moderated by Chris Limbach, Head of Fiduciary Advice, PGGM Institutional Business.  The participants were –

  • Jerome Berset, Head of Hedge Funds Research at EFG Asset Management
  • Kevin Duggan, Vice President of Equity Products, Ontario Teacher’s Pension Plan
  • Christoph Gort, Partner, SIGLO Capital Advisors
  • Mark Mehtonen, Portfolio Manager, Tactical Allocation/Ilmarinen Alpha, Ilmarinen Mutual Pension Insurance Company

The panel kicked off discussing how each panelist’s role relates to volatility.  One panelist stated that the volatility premium risk premium is something they avoid paying up for so they implement volatility strategies to minimize that cost.  Another panelist mentioned their use of volatility for hedging their equity portfolios.

The second topic covered by each panelist was regarding asset allocation.  One member is given a large amount of discretion with what to do with their allocation each year but their risk parameters are market based and change over the course of a year.  Another manager stated that they use volatility as a diversification tool and they prefer to focus on volatility managers that are neutral to long volatility and perform well when volatility increases.

The question thrown out to the panel was regarding the comparison of over the counter versus listed markets.  One manager says they use a mix of VIX futures and some over the counter volatility trades.  Another manager said they are agnostic, but their regulators push them to the listed markets for counterparty risk purposes.   The time frame of one manager was longer than the longest dated VIX futures contracts (more than 9 months) so they are forced to use the OTC market for those strategies.  A final interesting comment on this topic was that with the massive growth in VIX futures Commodity Trading Advisors are moving into trading volatility.