Institutional funds, lured by low option prices, are starting to purchase volatility, according to bankers. Mike Chadney, director in investor solutions at Henderson Global Investors, said rule changes, including Financial Reporting Standard 17 for U.K. pension funds, mean funds will need to consider managing the volatility of their returns.
Mark Tinsley, director in institutional sales at Deutsche Bank in London, said he has seen some funds trade volatility, usually through buying a long-dated call option and delta hedging or buying a straddle. Tinsley said there has also been some interest in variance swaps, but these trades are still most popular with hedge funds.
Not all fund managers, however, have jumped into the volatility market. Paul Atkinson, derivatives manager at Aberdeen Asset Management in London, thinks trading volatility as an asset class is not the job of equity fund managers with institutional clients. "I think it's a long way off for people like Aberdeen," he said. "[The fund managers] are here to manage equity not trade volatility," said Atkinson.
