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The Journal of Portfolio Management

The Journal of Portfolio Management

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Article

Volatility Exposure for Strategic Asset Allocation

Marie Brière, Alexandre Burgues and Ombretta Signori
The Journal of Portfolio Management Spring 2010, 36 (3) 105-116; DOI: https://doi.org/10.3905/jpm.2010.36.3.105
Marie Brière
is head of Fixed-Income, FX, and Volatility Strategy at Amundi (Asset Management of Credit Agricole and Société Générale) in Paris, France, and an associate researcher at SBS-EM, Université Libre de Bruxelles in Belgium. marie.briere@amundi.com
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Alexandre Burgues
is a portfolio manager at Amundi in Paris, France. alexandre.burgues@amundi.com
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Ombretta Signori
is a strategist in Fixed-Income, FX, and Volatility Strategy at Amundi in Paris, France. ombretta.signori@amundi.com
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Abstract

Brière, Burgues, and Signori examine the advantages of incorporating strategic exposure to equity volatility into the investment opportunity set of a long-term equity investor. They consider two standard volatility investments: implied volatility and volatility risk premium strategies. An analytical framework, which offers pragmatic solutions for longterm investors who seek exposure to volatility, is used to calibrate and assess the risk–return profiles of portfolios. The benefit of volatility exposure for a conventional portfolio is shown through a mean-modified Value at Risk portfolio optimization. A pure volatility investment makes it possible to partially hedge downside equity risk and thus reduce the risk profile of a portfolio, while an investment in the volatility risk premium substantially increases returns for a given level of risk. A well-calibrated combination of the two strategies enhances both the absolute and risk-adjusted returns of a portfolio.

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The Journal of Portfolio Management: 36 (3)
The Journal of Portfolio Management
Vol. 36, Issue 3
Spring 2010
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Volatility Exposure for Strategic Asset Allocation
Marie Brière, Alexandre Burgues, Ombretta Signori
The Journal of Portfolio Management Apr 2010, 36 (3) 105-116; DOI: 10.3905/jpm.2010.36.3.105

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Volatility Exposure for Strategic Asset Allocation
Marie Brière, Alexandre Burgues, Ombretta Signori
The Journal of Portfolio Management Apr 2010, 36 (3) 105-116; DOI: 10.3905/jpm.2010.36.3.105
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  • Article
    • Abstract
    • INVESTING IN VOLATILITY
    • BUILDING AN EFFICIENT PORTFOLIO WITH VOLATILITY
    • CONCLUSION
    • APPENDIX
    • ENDNOTES
    • REFERENCES
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