Backtesting delta-hedged volatility strategies

[spec77]

Why do you think variance swap is a better proxy for checking volatility risk premium? I would say it's not true.

PS. really, equity index variance swap data is available for free? Unless you are talking about the few VIX-like indices out there, it's hard to find reliable variance swap data even if you are willing to pay for it.

I was suggesting using VIX and SP500 (and similar VIX like index) to backtest, and not to worry about strike specific vol. Of course this is just an approximation.

 

[sle]

I was suggesting using VIX and SP500 (and similar VIX like index) to backtest, and not to worry about strike specific vol. Of course this is just an approximation.

Oh, I see. You would be better off just using ATM vol and doing simple RV-IV tests then.

Variance swap includes a fair amount of convexity premium, so it will always come in as expensive on RV/IV basis since the var swap payoff = (realized_vol^2 - var_strike^2)/(2*var_strike).