I've been reading an old paper by Bill Gross "Consistent Alpha Generation through Structure", pretty good stuff wish I had read long ago!
One piece of the text however I'm not sure I fully understand
Can anyone please explain the dynamics of to me a little better? Where's mazza when you need? How does this constitute a 'structurally short volatility' position? I understand that the creditor is already taking the short volatility position, but how does overweighting the front end of yield increase the degree of shortness?In addition, volatility can be sold via over-
weighting the front end of the yield curve relative
to an index. Historicalinformationratios are max-
imized in durationspace by purchasing 12-month
to 18-month securities and rolling them back up
the curve every quarter.