Central bank lending to commercial banks is typically collateralized which reduces central bank's credit risk exposure to “double default events” when the counterparty and the issuer of the underlying collateral asset both default in a short period of time. This paper presents a simple model...

Introduction -- Volatility and its estimation -- Overview of volatility derivatives -- Options delta hedging with no options at all -- Volatility derivatives in portfolio optimization -- Benefits of using volatility futures in investment strategies -- Predictive properties of the volatility term...

Central bank lending to commercial banks is typically collateralized which reduces central bank's credit risk exposure to “double default events” when the counterparty and the issuer of the underlying collateral asset both default in a short period of time. This paper presents a simple model...

We suggest that the term structure of volatility futures (e.g. VIX futures) shows a clear pattern of dependence on the current level of VIX index. At the low level of VIX (below 20) the term structure is highly upward sloping; at the high VIX level (over 30) it is strongly downward sloping. We...