{
  "slug": "volatility-arbitrage",
  "name": "Volatility Arbitrage",
  "aliases": [
    "Vol Arb",
    "Dispersion Trading"
  ],
  "category": "relative-value",
  "description": "A strategy that takes long/short positions across implied vs realized volatility, dispersion (index vol vs single-name vol), and term-structure of vol — typically dynamically delta-hedged.",
  "investment_thesis": "The variance risk premium (long-run wedge between implied and realized) and dispersion patterns are systematically mispriced by hedging flows and structured-product issuance.",
  "edge_source": "Option pricing models, gamma/vega risk management, and understanding of structured-product flows.",
  "typical_holding_period": "Days to months",
  "typical_leverage": {
    "min": 2,
    "max": 8,
    "typical": 4
  },
  "expected_volatility": {
    "min": 6,
    "max": 14,
    "unit": "annualized-pct"
  },
  "expected_sharpe": {
    "low": 0.5,
    "high": 1.5
  },
  "drawdown_profile": "Short-vol overlays produce smooth carry punctuated by sharp drawdowns (e.g., Volmageddon, 2018).",
  "correlation_to_equities": -0.2,
  "correlation_to_bonds": 0,
  "liquidity_profile": "monthly",
  "instruments_used": [
    "equity index options",
    "single-stock options",
    "VIX futures",
    "variance swaps"
  ],
  "asset_classes": [
    "derivatives",
    "equities"
  ],
  "primary_risks": [
    "vol-of-vol",
    "tail events",
    "model risk",
    "liquidity in single-name options"
  ],
  "fee_structure": {
    "management_fee": "1.5%-2.0%",
    "performance_fee": "20%",
    "high_water_mark": true
  },
  "key_metrics": [
    "delta-hedged P&L",
    "vega exposure",
    "implied vs realized",
    "VRP capture"
  ],
  "related_terms": [
    "variance-risk-premium",
    "dispersion-trade",
    "implied-volatility",
    "vix",
    "delta-hedging"
  ],
  "related_strategies": [
    "convertible-arbitrage",
    "statistical-arbitrage"
  ],
  "historical_drawdowns": [
    {
      "year": 2018,
      "event": "Volmageddon (Feb 5)",
      "estimated_drawdown_pct": -25
    },
    {
      "year": 2020,
      "event": "March COVID vol spike",
      "estimated_drawdown_pct": -12
    }
  ],
  "academic_foundations": [
    "Black-Scholes (1973)",
    "Carr-Wu (2009) — Variance Risk Premium"
  ]
}