Our two main research themes on Investment & Trading Strategy are sequential changes related to VIX, and using neural networks to choose the optimal asset allocation strategy.
It is well known amongst asset managers that assets related to the CBOE’s Volatility Index, VIX,follow a sequential change. In particular, the underlying options would be first to move, then the VIXindex, then the VIX futures, then derivatives on the VIX such as ETFs. As one future project atRiskLab, we’d like to further explore these types of relationships.
In 2013, M. Escobar et al. studied minimum variance, equal-risk contribution, and1/N portfolio allocation strategies to find that under different market conditions, particularly crisisstates, optimality changes. It was thus proven that switching between portfolios according to saidmarket conditions produced better Sharpe and Omega ratios. By using neural networks, we’vesuccessfully generalized the scope of the project to being better suited at choosing the optimalallocation strategy. Further research along this direction is therefore desired.