6.3
Dispersion Trading
PYTHON PLUGIN
Indexes
Volatility
Description
Strategy 6.3: Sell index vol, buy component vol (dispersion trade)
Strategy Logic
Strategy 6.3: Dispersion Trading.
Sell index volatility, buy component volatility. Exploits the
empirical tendency for index implied vol to be overpriced relative to
realised component vol (correlation risk premium).
Expects ``implied_vol`` column. One symbol should be the index; the
rest are components. ``index_symbol`` identifies which is the index.
Parameters
| Parameter | Default Value | Type |
|---|---|---|
| index_symbol | SPX | str |
| vol_lookback | 21 | int |
| dispersion_threshold | 0.02 | float |
Risk Configuration
| Risk Parameter | Value |
|---|---|
| Max Position Pct | 8.0% |
| Stop Loss Pct | 5.0% |
| Take Profit Pct | 8.0% |
| Max Drawdown Pct | 12.0% |