Volatility products hit by negative roll yield

Some volatility products aimed at investors have performed poorly so far this year – more so than the movement in volatility indexes would imply. The cost of rolling into new index futures contracts has been blamed for the losses. Can dealers adapt their products to deal with this? By Peter Madigan

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It has not been the easiest of times for volatility investors. Volatility has remained relatively subdued over the past year, despite the sovereign debt crisis in the eurozone, and is way off its peak at the end of 2008. At the same time, the term structure of volatility is upwardly sloping, partly reflecting the uncertainty in future market conditions. There is nothing particularly unusual in that, but it’s behind a huge drag on the performance of a variety of volatility-based products –

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