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Volatility Risk Premium

The volatility risk premium (VRP) is the compensation earned by investors for providing protection against unexpected market volatility. Parametric’s VRP solutions are a suite of strategies that seek to capture this unique and diversifying risk premium through the systemic sale of call and put options.

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The VRP can be a persistent source of return over time that may allow investors to access attractive risk-adjusted returns and increase overall portfolio diversification.


Investing in an options strategy involves risk. All investments are subject to loss. Learn more.

The effectiveness of the option strategy depends on a general imbalance of natural buyers over natural sellers of index options. This imbalance could decrease or be eliminated, which could have an adverse effect. A decision as to whether, when, and how to use options involves the exercise of skill and judgment, and even a well-conceived and -executed options programs may be adversely affected by market behavior or unexpected events. Successful options strategies may require the anticipation of future movements in securities prices, interest rates, and other economic factors. No assurances can be given that the judgment of Parametric in this respect will be correct. 

Options are not suitable for all investors and carry additional risks. Investors must ensure that they have read and understood the current options risk disclosure document before entering into any options transactions. In addition, investors should consult with a tax, legal, or financial advisor prior to contemplating any derivative transactions. The options risk disclosure document can be accessed here: http://www.optionsclearing.com/about/publications/character-risks.jsp.

 

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Capturing the VRP effectively and consistently 

Equity index options may be thought of as financial insurance contracts, and investors pay a premium for insurance-like protection against unfavorable outcomes. The size of the VRP is driven by a range of behavioral, structural, and economic factors that may lead to an imbalance between buyers and sellers of index options.


A defensively structured portfolio can capture the VRP by selling fully collateralized options without introducing leverage. Our rules-based solutions favor diversification, accessibility, and transparency.

Using different combinations of collateralized equity index put and call option positions, your institution can access VRP strategies across a range of equity market betas.

Which VRP solution is right for you?

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Why choose Parametric?

total firm AUM icon



$376B+

Total firm
AUM



VRP solutions aum icon


$16.6B+

VRP solutions
AUM



Years experience icon


30+

Years of
firm experience



As of 6/30/2022

Benchmarking Defensive Equity

INVESTOR SPOTLIGHT

Benchmarking Defensive Equity

An important consideration for any strategy is determining its appropriate benchmark for evaluating performance. Parametric's Defensive Equity (DE) strategy fits squarely within the category of options-selling strategies, also known as volatility risk premium (VRP) strategies, an investment universe where benchmarking considerations are more nuanced.

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This Material Is Intended for
Institutional Investors Only


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The information on this area of the Parametric Portfolio Associates® LLC (“Parametric”) website is intended for qualified institutional investors and their consultants. This information is not intended for accredited investors in any jurisdiction outside the United States in which the distribution or sale of Parametric investment services is not authorized.

It is published for informational purposes only and does not purport to address the financial objectives, situation, or specific needs of any investor. If you do not qualify, the information shown on this site (which may include information about our investment strategies and products, market commentary, and composite performance) may not be relevant or appropriate for you. Certain solutions discussed in these materials will be subject to minimum investment amounts and other restrictions that apply. There can be no assurance that any investment product or strategy will achieve its investment objectives or that there will be any return of capital. Performance may be volatile, and investors could lose all or a substantial portion of their investment.



I acknowledge that I am a qualified investor and that I have read, understand, and agree to the above conditions.