tag:blogger.com,1999:blog-7905515.post2958868979750606204..comments2024-03-14T11:09:32.759-05:00Comments on Falkenblog: VXX Risk Premium?Eric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-7905515.post-70903099713184550772010-11-30T15:03:39.433-06:002010-11-30T15:03:39.433-06:00It's definitely possible for idiosyncratic ris...It's definitely possible for idiosyncratic risk to be priced given that niche/transient opportunities are exploited by a small number of investors (if exploited at all).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-66365069176169545582010-11-30T13:14:20.147-06:002010-11-30T13:14:20.147-06:00This comment has been removed by the author.BRMhttps://www.blogger.com/profile/17864068100462781592noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-39325442340415820252010-11-30T13:14:18.800-06:002010-11-30T13:14:18.800-06:00I don't think you can overstate the amount of ...I don't think you can overstate the amount of underperformance that the VXX will show relative to the VIX due to the incredibly simple roll-convention that it uses. While much more liquid than say, two years ago, the futures and options on the VIX are not what anyone would really call "liquid". I know that the instituional firms that trade size in VIX futures have highly variable (and often judgement-driven) roll-conventions that pay attention to the skew in volatility and the slope of the futures curve that you reference.<br /><br />While real arbitrage is more difficult given the lack of an underlying for the VIX, plenty of firms are making money off the VXX/VXZ trade. It's a shame that they had such a marketing push clearly aimed at retail investors.BRMhttps://www.blogger.com/profile/17864068100462781592noreply@blogger.com