7. Academic Research on Eurex Derivatives

A key reason for the continued growth in international derivatives is in their increasing application as a complementary, or alternative, asset class, on top of traditional asset classes such as stocks or bonds. With up to EUR 1,000 billion in assets under management worldwide, hedge funds have developed into a very popular form of alternative investment.

The three studies, which are available on the Eurex website www.eurexchange.com, all illustrate the various benefits when using Eurex derivatives, each from a different perspective:

Managed Futures

“Eurex Derivative Products in Alternative Investments – The Case for Managed Futures” –  This study conducted by Thomas Schneeweis, Michael and Cheryl Philipp Professor of Finance at the University of Massachusetts (www.cisdm.org) identifies benefits for commodity trading advisors (CTAs) or managers of futures funds when using Eurex futures contracts for certain investment strategies. The study shows that these Eurex products can be used to significantly enhance the overall performance of dynamically managed portfolios. The Eurex DAX® and Dow Jones EURO STOXXSM Futures, as well as the range of fixed income futures traded at Eurex, turned out to be particularly
suitable for this purpose.

Hedge Funds

“Eurex Derivative Products in Alternative Investments – The Case for Hedge Funds” – In another study, Thomas Schneeweis analyzes the use of various futures and option contracts traded on Eurex and several other European futures and options exchanges for replicating the risk/return profiles of various hedge fund strategies focused on European investments. Results show that comparatively simple European futures and option strategies can be used either as part of a multi-factor hedge fund replication model to describe the return process of many Europe-focused hedge fund strategies, or as part of a set of passive systematic strategy-based trading programs that reflect
the return processes of these strategies.

Portable Alpha/Portable Beta Strategies in the Eurozone

“Portable Alpha and Portable Beta Strategies in the Eurozone – Implementing Active Asset Allocation Decisions using Equity Index Options and Futures”, a paper provided by Noël Amenc, Professor of Finance from EDHEC Business School (www.edhec-risk.com), shows how long/short managers in the Eurozone can use derivatives markets to help actively implement their asset and sector allocation decisions in a systematic manner so as to enhance the overall performance of their portfolio. The benefits of active asset allocation decisions reported in this paper originate from the combination of a robust econometric and portfolio process with the efficient trading of low-cost investible products such
as Eurex equity index futures and options. This strongly suggests that most long/short managers could use a similar methodology to enhance the performance of their portfolios on two levels: first, using an overlay portfolio designed to capture excess and factor allocation decisions on the European markets (an effect referred to as ‘portable alpha’) and secondly, using option strategies designed to consistently add value during calm markets (‘portable beta’).