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Discussions on “Using Volatility Futures as Extreme Downside Hedges” by Bernard

• Main findings: The author shows the hedging strategy using VIX futures is more cost-effective than a traditional hedging strategy using put options during the time period of Dec 2004 and Mar 2012.

• The author also shows his conclusion is robust because it applies to different objective functions, which minimizes risk/maximizes the (alternative) Sharpe ratio.

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Contribution of the paper

• Great summery on the methodology of hedging strategies used in practice considering abundant practical details, with results supported with most recent historical data, providing excellent reference the topic in consideration.

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Suggestions

• Audience: Practitioners or academics?

(1)More relevant literature: E.g. DeLisle et al. (2010) which shows among others, the VIX “call options” is a superior hedging instrument for SPY.

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(2) Research questions:• First - Are puts and VIX instruments

comparable?

(a) Protective puts

(b) VIX: Negatively correlated with equity value,

especially when equity value decreases.

SPX(SPY)

$

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• Second research question:

Supposing VIX is superior than puts, than move onto the comparison among VIX futures/options, synthetic VIX index, VT contracts, etc. (For liquidity problems).

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(3) Policy implication:• Can results be generalized to a bearish market?• To provide policy implications to dealers /

corporations /government?

(4) Minor suggestions:• I couldn’t link some of the equations to the others.

E.g. from the last Eq. on p.4 (Modified objective function) to Seven objective functions used in practice (p.5 - p.7).

• Easier to read through if you can move some practical details into footnotes.