Selling vol for a yield pickup

frattyquant · August 16th, 2012, 5:59 am

I read a research piece recently about why vol should fall because FI managers are selling vol to enhance yeilds? Is this common ? I wouldn't have thought that too many institutional mandates would allow it, and I can't imagine that the average fund manager knows too much about selling vol.

Martinghoul · August 16th, 2012, 6:43 am

Since when has not knowing too much about something been an obstacle to doing that very thing in ginormous size ? Certainly, not in finance, 'cause, as we all know, it's not exactly rocket science (not even brain surgery). And yes, it's common... Not as common now as it was pre-2008, but it's all coming back.

frattyquant · August 17th, 2012, 1:24 pm

Seems like they missed some great levels to sell at!

SpeedBall · August 21st, 2012, 5:31 pm

Totally agree with Martinghoul here...an average fund manager does know much about most of what he does Products which involve selling vol for yield enhancement (callable swaps/range accruals) have been an integral part of vol market in FI forever