Volatility Risk Transfer is the process of shifting the financial exposure to potential price fluctuations from one market participant to another. This is typically achieved through the use of derivative contracts or structured products.
Mechanism
In crypto, this occurs when an investor hedges a spot position by acquiring options, selling futures, or entering into a perpetual swap agreement. The counterparty assumes the volatility risk in exchange for a premium or spread payment.
Methodology
This strategy employs instruments specifically designed to isolate and trade volatility as an asset class. Institutional participants use sophisticated quantitative models to price these instruments and execute trades that efficiently transfer or assume specific volatility exposures within their portfolio management frameworks.
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