Johannes H¿mmerle

Volatility Trading Johannes H¿mmerle

Volatility, or risk in general, is one of the key concepts in modern finance. If one accounts for the fact that the notional value of exchange-traded options solely on equity indices amounted to about $51 trillion in 2004 - exceeding equity spot market turnover more than tenfold - it becomes obvious what crucial role volatility, particularly changes in volatility, might play in today's financial world. The question arises how investors are dealing with this exposure to volatility. Therefore, this thesis specifically aims to answer the following research question: What different trading strategies are existing and how can those strategies be compared using a consistent set of criteria? How can a certain view on future volatility be exploited to make a profit? In this thesis, the author tries to find answers to these questions in order to shed some light on a subject in finance which is fairly young and leaves room for new and insightful findings.