Journal of
Italian
Banking
Association

year 100
 

Archive » December 2017 » Volatility Exchange Traded Notes: a case study

Volatility Exchange Traded Notes: a case study

Andrea Paltrinieri, Enrico Geretto, Maurizio Polato
December 2017 - n. 12
Keywords: Exchange traded note, exchange traded funds, Vix, contango, backwardation
Jel codes: G10; G13

Over the last years, the financial engineering has developed a lot of complex financial instruments. Those products have flooded the financial market and are often traded by retail investors, without the needed knowledge to avoid substantial losses. The aim of this paper is to shed some light on a relatively new financial instrument, the Exchange Traded Note (Etn). Through a case study analysis, we show the complexity of the product, and the difficulties to track what it’s supposed to be its benchmark. In fact, we investigate an Etn trying to replicate the volatility index, Vix (Boost Sp500 Vix Sh-Ter Fut 2.25x Lev Day). Our results show that Etn performance are different compared to the benchmark due to the peculiarities of the Vix forward curve (contango and backwardation structure). We conclude our paper with some policy implication.

 

Interested in this paper?
Buy the issue