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“Allegory of the Prisoner’s Dilemma” by Andy Diaz Hope & Laurel Roth. Reproduced with permission of artists. Unauthorized reproduction prohibited.
VOLATILITY AND THE ALLEGORY OF THE PRISONER’S DILEMMA
“The only thing “Peace is not the
that will redeem absence of
mankind is conflict”
cooperation”
Dorothy
Bertrand Russell Thompson
COOPERATION COMPETITION
Cooperation
Great
Great Depression Recession?
WWI
WWII
0.4
0.3
0.2
0.1
-
(0.1)
(0.2)
Dec-02
Sep-03
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Mar-10
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Hedge Funds vs. 10% OTM SPX Put (Growth of $1) Short S&P 500 Index Put Option
1.43 Cross-Section of Hedge Funds
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Dec-02
Aug-03
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Dec-14
Source: Hedge fund monthly returns from HFRX, volatility returns from Artemis Capital.
VOLATILITY AND THE ALLEGORY OF THE PRISONER’S DILEMMA
Volatility is the Only Real Asset Class
In the real world… there are two asset classes… long and short volatility
What you think you are What you actually are
investing in0.4% 0.4% 0.4% 0.4%
investing in
5.0% 3%
5.0%
20.0%
10.0%
3.0%
5.0% 15.0%
3.0%
5.0%
5.0%
10.0%
5.0% 97%
5.0% 2.0%
Long/Short Equity
2.0%
Value Investing Special Situations
Convertible Arbitrage Currency Arbitrage 130/30 Fund Short Volatility, Correlation & Dispersion
Private Equity Real Estate Risk Parity
Distressed Directional Long Merger Arbitrage
Credit Index Fundamental Value Fundamental Growth Long Volatility, Correlation & Dispersion
Systematic CTA Global Macro Tail Risk
Sources: Special thanks to Drobny Global Macro for original visual conceptualization of this idea
VOLATILITY AND THE ALLEGORY OF THE PRISONER’S DILEMMA
Volatility is the Only Real Asset Class
Changing Correlations Between Fixed Income and Equity Prices
Correlation
Anti-correlation
LEGAL DISCLAIMER
THIS IS NOT AN OFFERING OR THE SOLICITATION OF AN OFFER TO PURCHASE AN INTEREST IN ARTEMIS VEGA FUND,
L.P. (THE “FUND”). ANY SUCH OFFER OR SOLICITATION WILL ONLY BE MADE TO QUALIFIED INVESTORS BY MEANS
OF A CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM (THE “MEMORANDUM”) AND ONLY IN THOSE
JURISDICTIONS WHERE PERMITTED BY LAW. AN INVESTMENT SHOULD ONLY BE MADE AFTER CAREFUL REVIEW OF
THE FUND’S MEMORANDUM. THE INFORMATION HEREIN IS QUALIFIED IN ITS ENTIRETY BY THE INFORMATION IN
THE MEMORANDUM.
AN INVESTMENT IN THE FUND IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. OPPORTUNITIES FOR
WITHDRAWAL, REDEMPTION AND TRANSFERABILITY OF INTERESTS ARE RESTRICTED, SO INVESTORS MAY NOT HAVE
ACCESS TO CAPITAL WHEN IT IS NEEDED. THERE IS NO SECONDARY MARKET FOR THE INTERESTS AND NONE IS
EXPECTED TO DEVELOP. NO ASSURANCE CAN BE GIVEN THAT THE INVESTMENT OBJECTIVE WILL BE ACHIEVED OR
THAT AN INVESTOR WILL RECEIVE A RETURN OF ALL OR ANY PORTION OF HIS OR HER INVESTMENT IN THE FUND.
INVESTMENT RESULTS MAY VARY SUBSTANTIALLY OVER ANY GIVEN TIME PERIOD.
CERTAIN DATA CONTAINED HEREIN IS BASED ON INFORMATION OBTAINED FROM SOURCES BELIEVED TO BE
ACCURATE, BUT WE CANNOT GUARANTEE THE ACCURACY OF SUCH INFORMATION.