For Dan Corcoran, a fascination with option pricing began in high school. By college, he was coding up pricing models and trading strategies in MatLab. Compelled by the multi-dimensional set of inputs driving prices, in 2014 Dan set out to found Volos, the financial backtesting and consultancy firm he is now President of. Dan shares with us his love for ski jumping and the manner in which dynamic calculations – of wind speed, snow quality and lighting pitch among them – must be made, sometimes instantaneously. Likening this to option trading, he notes how quickly investors must react to changing risk parameters in derivative securities. Our conversation explores both the power and pitfalls of harnessing data to generate insights on trading strategies. Dan asserts that no strategy can be static but rather investors must respond to the reality that the market’s risk profile evolves over time.

We turn to some of the results generated through the Volos engine as Dan shares the counterintuitive result that even through the GFC, investors would have been better off not engaging in certain hedging strategies like put spreads. The Warren Buffet saying, “price is what you pay, value is what you get” may be applicable as the sky-high price of options through that period reduced the value of the insurance payout. Lastly, we discuss benchmarking, a feature well entrenched in traditional markets like stocks and bonds, but nascent to option strategies. Dan is both optimistic and excited that efforts to create benchmarks can lead to asset growth in derivative-based investment strategies.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Dan Corcoran.