Ansbacher To Launch Pure Equity Index Variance Swap Strategy

Aug 7 2008 | 12:09pm ET

Ansbacher Investment Management plans to launch an equity index variance swap strategy in the third quarter to take advantage of persistent overpricing of broad-based equity index volatility. The strategy will be short near-term variance swaps on a basket of domestic and international indexes and will hedge the exposure with longer-dated forward start swaps.

According to Max Ansbacher, president of the firm, "variance swaps are a pure play in a space where we already have years of experience. They offer a way to capture the excess volatility risk premium which is generated by the hedging activity of the large number of investors who are long equities.”
 
Equity investors tend to overpay for index puts to insure their portfolios, driving up index option prices and causing index option implied volatility to consistently exceed subsequent realized volatility. Ansbacher said this overestimation averages almost 33% a month and “is something we have taken advantage of in our index option selling programs.”

In addition to the variance swap program, Ansbacher offers a low volatility, market neutral, index option writing strategy, and active programs benchmarked to the CBOE Standard & Poor's BXM and PUT indexes.


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