Creating Anti-Fragile Portfolios

Is Your Portfolio Long or Short Vol?

August 2020. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Most asset classes are bets on economic growth
  • Diversified endowment-style portfolios are essentially short volatility
  • Long volatility strategies can be used to create anti-fragile portfolios


In what by now seems like a galaxy far far away, I once worked as an equity derivatives intern at Credit Suisse First Boston in London. As at other investment banks, the team had three distinct types of members: salespeople, traders, and structurers. The latter were almost exclusively polymaths from the top French engineering schools who had few job opportunities in Paris but surprisingly well-compensated ones across the English Channel.

Their core role was to create innovative new products that they first pitched to the team during daily 7 am meetings. In one such meeting, the managing director asked if the proposed product was long or short volatility.

The structurer was stumped and could not run through the complex derivative solution quickly enough. So he blushed and mumbled that he would revert later with an answer.

The question has stuck with me ever since. It is not a common one in the asset management industry. Most investors are pretty much the same across asset classes and their investment philosophy is relatively easy to grasp after a short conversation, whether they allocate capital to stocks, bonds, or real estate. They buy something because it is cheap, they follow trends, or invest in quality.

In contrast, speaking with someone who works on a derivatives desk is an almost alien encounter. It is all about gamma, delta-hedging, and similar terminology borrowed from the Greeks.

But after years in the investment industry in roles varying from real estate investor to hedge fund manager, I’ve found the question of whether a portfolio is long or short volatility has risen almost to the top when it comes to long-term asset allocation (read Thou Shall Not Short the VIX).

Let me make the case.


Most asset classes are bets on economic growth. Companies struggl