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Indexes

  • Zura Kakushadze
  • Juan Andrés Serur
Chapter

Abstract

This chapter discusses trading strategies for indexes, which are diversified portfolios of assets combined with some weights. The chapter discusses trading strategies, including detailed mathematical descriptions, such as cash-and-carry arbitrage also known as index arbitrage, whereby the basis between the current price of an index futures and its theoretical fair value is arbitraged by buying/selling the index basket also known as “cash” and selling/buying the futures, dispersion trading in equity indexes, which amounts to taking long positions on volatilities of the index constituents and a short position on index volatility, dispersion trading using a subset of the index portfolio by utilizing statistical risk models to determine the subset, intraday arbitrage between index EFTs, and index volatility targeting using a risk-free asset for maintaining a constant volatility level by rebalancing between the index and the risk-free asset.

Keywords

Cash-and-carry arbitrage Index arbitrage Basis Fair value Cash Futures Dispersion trading Index constituents Index volatility Subset portfolio Intraday arbitrage Volatility targeting Risk-free asset S&P 500 Dow Jones Industrial Average (DJIA) Russell 3000 Market capitalization Spot Correlation trading Index level Sample correlation matrix Principal component analysis (PCA) Statistical risk model Time series Shares outstanding 

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Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Zura Kakushadze
    • 1
  • Juan Andrés Serur
    • 2
  1. 1.Quantigic Solutions LLCStamfordUSA
  2. 2.Universidad del CEMABuenos AiresArgentina

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