TY - JOUR T1 - Volatility Managed Indexes: The Importance of Intraday Data JF - The Journal of Index Investing SP - 15 LP - 31 DO - 10.3905/jii.2021.1.112 VL - 12 IS - 3 AU - Ryan Poirier Y1 - 2021/11/30 UR - https://pm-research.com/content/12/3/15.abstract N2 - Modern volatility managed indexes employ antiquated close-to-close volatility models to scale exposure. This has material consequences on the option pricing dynamics for structured investments, many of which reference a volatility managed index because of option pricing benefits associated with the constant volatility. The author tests two daily close-to-close models and three intraday “realized volatility” models that leverage the rich information dynamics found in intraday data. The results, across three highly liquid US large-cap indexes, suggest that the latter three models produce more consistent volatility profiles, or alternatively, a lower volatility of volatility, without sacrificing performance (i.e., the Sharpe ratio). All else being equal, this lower volatility of volatility should be preferred by product issuers and investors because of the resulting option pricing benefits. ER -