The Alternative View – VRP and Credit

The VRP as a practical alternative to credit

Positions in investment grade corporate bonds are held by many market participants. Traditional balanced portfolios typically hold a substantial exposure to the asset class alongside equities and government bonds while many pension managers hold investment grade bonds – which are inherently risky assets – to match future fund liabilities.

Separately, in recent years there has been increased awareness and use of diversified alternative risk premia, of which one of the most persistent and historically resilient is the volatility risk premium (“VRP”).

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