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G. DeSimone and O. Shih: Reducing Risk through Multifactors: Implied Variance Asymmetry and Implied Beta

February 15, 2024

OptionMetrics’ latest study challenges conventional risk assessment using metrics like implied variance asymmetry (IVA), calculated as the measure of downside variance relative to upside variance, and option-implied beta strategies. By combining low beta with high IVA, we yield a superior portfolio with 12% annualized return, 0.85 Sharpe Ratio, and 1.23 Sortino Ratio. Contrary to expectations, the relationship between IVA and returns suggests complexities beyond simple risk factors, with high IVA portfolios showing lower downside variance and better risk-adjusted returns relative to the benchmark.

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