Volatility trading system design with scaling Risk Management

• Main Author: Zhou, Bin, S.M. Massachusetts Institute of Technology (2020)
• Other Authors: Massachusetts Institute of Technology. Engineering and Management Program.
• Format: Others
• Language: English
• Published: Massachusetts Institute of Technology 2021
• Subjects: Engineering and Management Program.; System Design and Management Program.
• Online Access: https://hdl.handle.net/1721.1/132881

Thesis: S.M. in Engineering and Management, Massachusetts Institute of Technology, System Design and Management Program, May, 2020 === Cataloged from the official version of thesis. === Includes bibliographical references (page 41). === We propose a volatility trading system that comprises two uncorrelated components. The first component is astraddle long-short strategy which profits by anticipating changes in the volatility of stocks within the SP 500 Index.The second component is a filtered out-of-the-money put writing strategy on the SP 500 Index which profits by collecting premiums while avoiding losses that would occur during market selloffs by using the Absorption Ratio to detect fragile market regimes. We combine these two components into a portfolio by weighting them in such a way that they contribute equally to total portfolio risk.In addition,we include a dynamic hedging overlay to provide further protection to the portfolio. === by Bin Zhou. === S.M. in Engineering and Management === S.M.inEngineeringandManagement Massachusetts Institute of Technology, System Design and Management Program