A comprehensive description of the trading and statistical characteristics of VIX futures and their exchange-traded notes motivates our study of their benefits to equity investors seeking to diversify their exposure. We analyze when diversification into VIX futures is ex-ante optimal for...

Recent research advocates volatility diversification for long equity investors. It can even be justified when short-term expected returns are highly negative, but only when its equilibrium return is ignored. Its advantages during stock market crises are clear but we show that the high...

In the field of optimisation models for passive investments, we propose a general portfolio construction model based on principal component analysis. The portfolio is designed to replicate the first principal component of a group of stocks, instead of a traditional benchmark, thus capturing only...

This paper examines the performance of a general dynamic equity indexing strategy based on cointegration, from a market efficiency perspective. A consistent return in excess of the benchmark is demonstrated over different time horizons and in different, real world and simulated stock markets. A...

This paper presents two applications of cointegration based trading strategies: a classic index tracking strategy and a long-short equity market neutral strategy. As opposed to other traditional index tracking or long-short equity strategies, the portfolio optimisation is based on cointegration...

Investors traditionally rely on credit ratings to price debt instruments. However, rating agencies are known to be prudent in their approach to rating revisions, which results in delayed ratings adjustments to mutating credit conditions. For a large set of eurobonds we derive credit spread...

We present a detailed study of portfolio optimisation based on cointegration, a statistical tool that here exploits a long-run equilibrium relationship between stock prices and an index price. We compare the theoretical and empirical properties of cointegration optimal equity portfolios with...

We study the role of diversification in reducing the volatility of corporate bond returns induced by changes in credit spreads. Specifically, we look at how credit risk can be diminished when a portfolio is diversified across countries, industry sectors, maturities, seniority types and credit...

This paper represents the first study of retail deposit spreads of UK financial institutions using stochastic interest rate modelling and the market comparable approach. By replicating quoted fixed deposit rates using the Black Derman and Toy (1990) stochastic interest rate model, we find that...

Annuities are perceived as being illiquid financial instruments, and this has limited their attractiveness to consumers and inclusion in financial models. However, short positions in annuities can be replicated using life insurance and debt, permitting long positions in annuities to be offset,...