G R A N T ’ S F A L L C O N F E R E N C E / N E W Y O R K C I T Y - O C T O B E R 2 3 , 2 0 1 2
Christopher Cole, CFA
Artemis Capital Management LLC
Artemis Vega Fund LP
520 Broadway, Suite 350
Santa Monica, CA 90401
(310) 496-4526 phone
(310) 496-4527 fax info@artemiscm.com
For Investment Professional Use. Not for Distribution

Definition of fear from Merriam-Webster
1

What is Volatility?
Imagine the world economy as an armada of ships passing through a narrow and dangerous strait between the waterfall of deflation and hellfire of inflation
Our resolution to avoid one fate may damn us to the other
Illustration by Brendan Wuiff based on concept by Christopher Cole
2

60
40
120
Volatility in World’s End Deflation
Volatility shocks are rightfully associated with deflationary crashes
Volatility at World's End Deflation
Dow Jones Industrial Index (RHS) vs. 1-month Realized Volatility of DJIA (LHS)
50,000
100
80
5,000
500
20
0 50
3

2,000
1,500
1,000
500
0
120
100
80
60
40
20
0
Volatility in Hellfire of Inflation
Extreme volatility can also occur in hyperinflation
Performance of German Stock Market during Weimar Republic Hyperinflaton
Adj. according to USD exchange rate
Adj. according to wholesale index numbers
In paper marks, Weimar
Weimar VIX?
(1)
Realized Volatility of German Stock Market during Weimar Republic Hyperinflation
(monthly volatility data annualized)
0
0
10
1
0
0
0
0
100,000,000
10,000,000
1,000,000
100,000
10,000
1,000
100
Source: “Economics of Inflation; A Study of Currency Depreciation in Post-War Germany" by Constantino Bresciani-Turroni Out of Print / 1968
(1) Based upon monthly realized variance from available stock price data.
4

volatility) are associated with lower equity returns
Many people who trade volatility do not realize they
Everything you need to know about trading volatility
“There are known knowns; there are things we know that we know. There are known unknowns; that is to say there are things that, we now know we don't know. But there are also unknown unknowns – there are things we do not know, we don't know.”
Donald Rumsfeld, United States Secretary of Defense
 US Fiscal Cliff
 China hard landing
 War with Iran
Volatility
 European Crisis
 Global Recession
 Fiscal Austerity
 Vanilla Options
 VIX Index
 Realized Volatility
 Variance Swap
Risks that you know and can quantity
Risks that you know but can’t quantify
?
Volatility of Volatility
 Forward Volatility
 Convexity
 Tail Risk Hedging
 Vol Curve Trades
Risks that you don’t know but could quantify
Risks that you don’t know and can’t quantify
5
Regimes of Volatility-of-Volatility (2007 to 2012)
Volatility Regime Vol of VIX
Period Average
VIX index
SPX Return
(annual)
(2007 to Sep 2012)
24.8
+1%
+5%
(2006 to July 2007)
Credit Crisis Onset
(Aug 2007 to Aug
82.7
23.0
-11%
(Sep 2008 to Feb
49.6
-71%
26.7
+35%
23.2
LTRO Steepening
(Nov 2011 to Sep
97.7
20.3
2012)
+10%
+16%

Everything you need to know about trading volatility
(2008 Crash, Great Depression)
 Crash occurs over time (months)
 Slow recovery
 Natural end of leveraging cycle
 High volatility for long period
 Elevated volatility-of-volatility
 Start of a recession or depression
?
 Hyper-speed crash (days, seconds)
 Fast recovery
 Market fragmentation
 Extreme volatility for shorter period
 Extreme volatility-of-volatility
 Omen of future recession (often)
6
Regimes of Volatility-of-Volatility (2007 to 2012)
Volatility Regime Vol of VIX
Period Average
VIX index
SPX Return
(annual)
(2007 to Sep 2012)
24.8
+1%
+5%
(2006 to July 2007)
Credit Crisis Onset
(Aug 2007 to Aug
82.7
23.0
-11%
(Sep 2008 to Feb
49.6
-71%
26.7
+35%
23.2
LTRO Steepening
(Nov 2011 to Sep
97.7
20.3
2012)
+10%
+16%

Bull Market in Fear
New paradigm for pricing risk that emerged after the 2008 financial crisis as related to our collective fear of the next deflationary crash
7

Bull Market in Fear
Structural imbalances in supply-demand dynamics of volatility markets
 Post-traumatic Deflation Disorder
 Desire for safety and security at any cost
 Forced participation in risk assets drives desire for hedging
 Unspoken feeling that gains in financial assets are “artificial”
 Debtor-developed economies face structural headwinds
 Unrest in Middle East
 Government regulation (Dodd-Frank, Volcker rule) has constrained risk appetite for banks to supply volatility
 Lower demand for structured products by investors
8

1.90x
1.70x
1.50x
1.30x
1.10x
0.90x
0.70x
0.50x
Abnormally Steep Volatility Term Structure
"There is no terror in the bang, only in the anticipation of it." Alfred Hitchcock
Volatility term-structure measures the anticipation of future volatility
Bull Market in Fear / VIX Futures Curve (normalized by spot VIX)
2004 to Present
Expiry
9

Abnormally Steep Volatility Term Structure
The most extreme term-structure for S&P 500 index volatility in two decades reflects continued anticipation of a deflationary collapse
2.4x
2.2x
Ratio of Expected Future Volatility as Ratio to Spot Volatility
S&P 500 options
2.0x
VIX Index
1.8x
1.6x
1.4x
1.2x
0.08 0.17 0.25 0.33 0.42 0.50 0.58 0.67 0.75 0.83 0.92 1.00 1.08 1.17 1.25 1.33 1.42 1.50
Expiry (1=year)
Cumulative Average (1990-Mar 2012)
Bull Market of 1990s (avg.)
2009 to 2012 Bull Market in Fear
2012 YTD (avg.)
2000 to Feb 2009 (avg.)
10

35
30
25
Volatility is cheap and expensive at the same time
VIX Futures Curve Comparison
August 2012 vs. September 2008
!
20
15
August 17, 2012 / Lowest VIX in 5 years
September 15, 2008 / Day after Lehman Bros. Bankruptcy
10
Spot Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8
11

90%
80%
70%
60%
Volatility Regimes Defined by Central Banking
Volatility spikes consistently occur after the end of central bank balance sheet expansion
130%
Fed Balance Sheet Expansion and VIX index
50
120%
110%
No Fed Action
QEI
QEII
Op. Twist+LTRO(ECB)
QEIII
VIX
Aug 2011 Crash
QEII
LTRO (ECB),
Op Twist (Fed) & QEIII (Fed)
45
40
Flash Crash
100% 35
30
25
20
15
Since 2008 global central banks have expanded their balance sheets by $9 trillion - enough fiat money to buy every person on earth a 55'' wide-screen 3D television
12
Risk and Vol Returns in Fed BS Regimes
Crisis and Recovery (September 2008 to September 2012)
Period
Fed Balance Sheet ↑
Average Weekly Change
SPX VIX 21d SV Fed BS
0.6% -1.7% 0.0% 1.5%
8.1% Fed Balance Sheet > +1 σ ↑ 3.2% -7.4% 0.0%
Fed Balance Sheet ↓ 0.0% 1.3% -2.0%
Fed Balance Sheet < -1 σ ↓ 1.2% 2.7% -1.9%
-0.9%
-4.7%
Post-Crisis Recovery Period (Mar 2009 to Sep 2012)
Period Average Weekly Change
SPX VIX 21d SV Fed BS
QEI con't (March09-Jun 09) 1.4% -2.6% -2.5% 0.6%
0.2% -0.2% -0.8% 0.2% Post QEI (Jun09-Oct10)
QEII (Sep10-June11)
(1)
Post-QEII (July11-Nov11)
0.5%
-0.2%
-1.0%
2.2%
0.0%
2.3%
0.5%
-0.1%
LTRO (Dec11 to Sep 0.3% -1.5% -2.7%
(1) period f ollowing announcement of QEII at Jackson Hole August 2010.
Sources: Federal Reserve Bank, ECB, Bloomberg
0.0%

Post-Traumatic-Deflation-Disorder (PTDD)
Tail Events are now priced as if they are standard risks
Highly unlikely events are either ignored or vastly over weighted based on our collective experiences
25% Implied Odds of % Returns for S&P 500 index
SPX Options (1year)
Lifetime odds of Dying from these causes is 1 in 4.7
(1)
Black Swan?
Heart Disease
1 in 6
20%
Actual from Sep 2008 to Sep 2012
Implied from Jan 1990 to Sep 2008
Implied from Sep 2008 to Sep 2012
September 2012 (average)
15%
Stroke
1 in 28
10%
Car Crash
1 in 88
5%
0%
Implied 12m %G/L in S&P 500 Index
A “black swan” is not dying because your parachute didn’t open while skydiving…. it is dying because the guy whose parachute didn’t open landed on you while you were golfing
Note: Artemis calculates the implied probability distribution using interpolated weights from variance swap pricing. This methodology may occasionally give higher weightings to tails in down markets than other methods like taking the second derivative of call prices, fitting mixture of normal PDFs to recover prices, or fitting vol models (SVI,SABR).
(1) "Lifetime Odds of Death for Selected Causes, United States, 2007" / National Safety Council 2011 Edition
13

50%
40%
30%
20%
10%
0%
High Cost of Tail Risk Insurance
Fear of deflation is not MISPLACED but it is MISPRICED
You are not smart for hedging what everyone else already knows!
S&P 500 Index 12-month % Contribution to Model-Free Variance by Expected Returns
40%-50%
30%-40%
20%-30%
10%-20%
0%-10%
1995 1995 1996
1996 1997 1998
Implied 12m %G/L in S&P 500 index
Note: Artemis calculates the implied probability distribution using interpolated weights from variance swap pricing. This methodology may occasionally give higher weightings to tails in down markets than other methods like taking the second derivative of call prices, fitting mixture of normal PDFs to recover prices, or fitting vol models (SVI,SABR).
14

1.00
0.80
0.60
0.40
0.20
-
(0.20)
(0.40)
(0.60)
(0.80)
Hedge Fund Strategies 12m Correlation to
ATM Short Straddle on SPX
(HFRX Absolute Return, Equity Nuetral, Hedge Index, Merger Arb, RV Arb,
Convertible Arb / Monthly)
1
0.8
0.6
0.4
0.2
0
125
105
85
65
45
205
185
165
145
Extreme Volatility-of-Volatility and Hyper-Correlations
Fire Risk is High Today in the Forest
Higher correlations are kindling for violent volatility fires (spike)
HIGHER CORRELATIONS lead to...
S&P 500 Sector Correlation (60 day)
2000 to 2012
More VIOLENT VOLATILITY SPIKES
Volatility of VIX index (60 day)
2000 to 2012
15
1
0.8
0.6
0.4
0.2
0
HIGHER CORRELATIONS lead to...
S&P 500 Sector Correlation (60 day)
2000 to 2012

0.6
0.4
0.2
0
-0.2
-0.4
Extreme Volatility-of-Volatility and Hyper-Correlations
$USD currency index strength = Higher Volatility
Correlation of $USD Index to VIX Index
(1986 to 2012)
Note: Prior to 1990 there was not VIX index. We have substituted the CBOE VXO index, the precursor to the VIX, which was available starting in 1986.
16

Volatility of an Impossible Object
When the market identifies a risk it is usually overpriced in volatility markets
Tail risk pricing (both left and right) has been consistently late to the game
Volatility (fear) is an effective leading indicator to inform asset allocation
when a “bull market in fear” meets a “bubble in safety” bet on interest rate volatility
17

Bet on unknown unknowns… don’t hedge known unknowns
Volatility markets are surprisingly bad at predicting future risk
When markets identify a ‘known unknown’ that risk traditionally is overblown or at the very minimum over-hedged
240
220
200
Fiscal Cliff or Volatility of Volatility Cliff?
Predicted Volatility of VIX vs. Realized Vol of VIX
October 2012
Volatility of VIX was 200% on Oct 13, 2008
Maximum was 265% on Aug 29, 2011
180
160
140
120
100
80
60
40
11-Oct-12
Cheap
Fear
6-Nov-12 3-Dec-12
US Fiscal Cliff
Very
Expensive Fear
Market Expected Volatility of VIX (local)
5yr Average Realized Vol-of-VIX
1yr Average Realized Vol-of-VIX
6mo Average Realized Vol-of-VIX
28-Dec-12 25-Jan-13 21-Feb-13 19-Mar-13 15-Apr-13 9-May-13
Forward Period
18

Bet on unknown unknowns… don’t hedge known unknowns
…monetize the bull market in fear by playing the term structure
(Volatility futures & Options, SPX Vol Term Structure)
1.6x
1.5x
1.4x
1.3x
1.2x
1.1x
1.0x
Unknown
Unknown Crash
Known-Unknown Crash
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8
Forward Volatility (October 2012) Historical Average Forward Volatility (since 2004)
19

financial crash options market is marked by the transfer of risk premium from the right of the return distribution to the left tail
60%
50%
40%
30%
20%
10%
0%
The more people fear the LEFT TAIL the more you should buy the RIGHT… and vice versa
Role of the trader is not so much to predict the future but to identify mispriced risk
The options market is consistently late to the game in pricing both the right and left tails
Cross Asset Implied Probability Distribution Comparison (2008 pre-crisis to 2012)
Variance Swap Weighting { SPY, EFA, EEM, TLT, IEF, HYG, USO, GLD }
2012
Pre-Crisis 2008
Right
Tail
Bias
60%
60%
50%
50%
40%
40%
30%
30%
Left tail bias
20%
20%
Gold
Oil
HY Bonds
UST 10yr
UST 30yr
Intl. Equity (Emerg)
Intl. Equity (Dev)
US Equity
10%
10%
0%
0%
Gold
Oil
Oil
UST 30yr
Intl. Equity (Emerg)
Intl. Equity (Emerg)
Intl. Equity (Dev)
Expected 1yr Asset Class Return Distribution by Standard Deviation (Historical) by Standard Deviation (Historical)
Note: Artemis calculates the implied probability distribution using interpolated weights from variance swap pricing. This methodology may give higher weightings to tails in down markets than more traditional methods like taking the second derivative of call prices, fitting mixture of normal PDFs to recover prices, or fitting vol models (SVI,SABR).
20

…but it is a valuable exercise to theorize! … Volatility markets turn
Double Convexity in Inflation Boom
SPX 10yr OTM Call - 10K Strike
5 yrs to expiry/ SPX @ 3,000 (16% annual gain)
2,500
2,000
1,500
1,000
500
0
15%
20%
25%
5yr implied vol
30%
35%
40%
45%
40.0%
30.0%
20.0%
10%
50%
5%
5yr UST Yield
0%
The more people fear the LEFT TAIL the more you should buy the RIGHT…
Maybe it is correct to buy tail risk insurance ... but is everyone just hedging the wrong tail?
20%
S&P 500 Probability Distributions in different Regimes of Risk
1-year Gain-Loss%
15%
10%
Implied from March 2012 SPX options
Simulated from in 2013-2022 Hyperinflationary Model (1 scenario of 10k)
5%
0%
-50% -43% -35% -28% -20% -13% -5% +3% +10% +18% +25% +33% +40% +48%
One Year Gain/Loss % in S&P 500 index
Note: Artemis created a model to simulate the behavior of the S&P 500 index and volatility during an inflationary shock. The model is not intended to be a prediction of the future but is merely a rudimentary stochasticbased method to understand what modern markets may look like in rampant inflation. The simulation runs 10,000 price scenarios for the S&P 500 index over 10 years modeling daily stock price behavior using a generalized Wiener process (Wiener.. not Weimar) and a drift rate that assumes linkages between annual CPI and equity performance. We assume inflation rises sharply from current levels of 2.87% in 2012 to 26% by
2015 and stays elevated at that level until 2017 (20% a year overall). The average volatility shifts are based upon assumptions regarding equity return to variance parameters observed in prior inflationary episodes
(1970s US & 1920s Germany). The simulation shows annualized SPX returns for the decade at +9.94% but adjusted for inflation this drops to -9.8%.
21

2
1.5
1
Volatility Term Structure
1-year Volatility / 1-month Volatility
0.5
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
600
Fear over Fundamentals
Volatility term-structure is an effective indicator to inform equity exposure
S&P 500 index portfolio exposure based on Vol Slope
1996 to 2012
550
500
450
Period of Steep Vol Slope (1yr VarK / VIX > 1.10)
S&P 500 Index
Tactical Allocation to S&P 500 during periods with Steep Vol Slope
400
350
300
250
200
150
100
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
35
30
25
20
15
10
5
0
50
45
40
Cyclically Adjusted PE Ratio
(Price to Average Inflation Adjusted Earning from past 10-years)
1881 to 2012
22
575
475
375
275
Period of Steep Vol Slope (1yr VarK / VIX > 1.10)
S&P 500 Index
Tactical Allocation to S&P 500 during periods with Steep Vol Slope
175
75
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Risk Free Assets are Risky
When the “Bull Market in Fear” meets a “Bubble in Safety” a short equity option position and “risk-free’ UST bond have similar risk-to-reward payoffs!
Efficient Frontier / Risk to Reward Comparison
Long Dated UST Bond vs.
1yr OTM Short Puts (collateralized)
30yr UST
Bond
SPX Short Put
(Strike @-25% OTM)
10yr UST
Bond
SPX Put
Stress Test
SPX ↓ -9% to -14%
68% to 33% probability
UST Bond
Stress Test
SPX ↓ -25%
13% chance
Rates ↑ 100bps to 200bps
68% to 33% probability
SPX ↓ -50%
2% probability
Rates ↑ 320bps to 600bps
13% to 2% probability
Note: All data as of September 14, 2012. Estimated unrealized loss on position given stress test scenario. Historic probability data based on period of 1960 - 2012 for the UST bonds and 1950 to 2012 for the S&P 500 index. Option pricing based on estimated local volatility shifts, however actual shifts may differ from estimates during a real crash depending. All stress tests are assumed to occur close to the purchase period of the instrument. Unrealized losses may differ closer to maturity.
Yield to Risk / UST Bond vs. "Volatility Bond" (Collateralized Short Put on S&P 500 index)
Investment
Volatility Bond / Short SPX Put + Collateral
Yield
SPX Put (Strike @-25%) 2.69%
SPX Put (Strike @2009 lows) 0.51%
US Treasury Bond
Yield
Maturity
1 year
1 year
Maturity
US Treasury Bond / 10-year 1.87% 10 years
US Treasury Bond /30-year 3.09% 30 years
Est. MTM
Loss
-2%
-0.4% 68%
UST Rates ↑ 100bps
1.319x
Est. MTM
Loss
Historic Prob.
%
Risk to
Reward
-9%
-18%
Stress Test #1 Stress Test #2 Stress Test #3 Stress Test #4
SPX ↓ -9%
Historic Prob.
%
68%
68%
68%
Risk to
Reward
1.373x
0.214x
0.176x
Est. MTM
Loss
-4%
-0.9%
UST Rate ↑ 200bps
Est. MTM
Loss
-17%
-31%
SPX ↓ -14%
Historic Prob.
%
39%
39%
Historic Prob.
%
39%
39%
Risk to
Reward
0.616x
0.588x
Risk to
Reward
0.113x
0.099x
Est. MTM
Loss
-11%
-3%
-25%
-44%
SPX ↓ -25%
Historic Prob.
%
13%
Risk to
Reward
0.242x
13%
UST Rate ↑ 325bps
0.176x
Est. MTM
Loss
Historic Prob.
%
13%
13%
Risk to
Reward
0.074x
0.070x
Est. MTM
Loss
-33%
-15%
Est. MTM
Loss
-41%
-62%
SPX ↓ -50%
Historic Prob.
%
2%
Risk to
Reward
0.081x
2%
UST Rate ↑ 600bps
0.034x
Historic Prob.
%
2%
2%
Risk to
Reward
0.045x
0.050x
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-5% -15% -25% -35%
1yr Volatility Bond (short OTM SPX Put Option Collateralized)
Lond Dated UST Bonds
-45% -55% -65%
23
0.80x
0.60x
0.40x
TLT 20+ US Treasury Bond ETF - 5% OTM Vol Skew
0.20x
0.00x
May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12

150
100
50
250
Risk Free Assets are Risky
When risk-free is risky … it is time to buy volatility on safety itself
Higher interest rate volatility can be realized in deflation and inflation
Interest Rate Volatility is Low
... and a better bargain on a forward basis than equity vol
Merrill Lynch MOVE Index = VIX for UST Bonds
Weighted Volatility of 2yr,5yr,10yr & 20yr UST
200
Source: Bloomberg
24
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-5% -15% -25% -35%
1yr Volatility Bond (short OTM SPX Put Option Collateralized)
Lond Dated UST Bonds
-45% -55% -65%
Yield to Risk / UST Bond vs. "Volatility Bond" (Collateralized Short Put on S&P 500 index)
Investment
Volatility Bond / Short SPX Put + Collateral
Yield
SPX Put (Strike @-25%) 2.69%
SPX Put (Strike @2009 lows) 0.51%
US Treasury Bond
Yield
Maturity
1 year
1 year
Maturity
US Treasury Bond / 10-year 1.87% 10 years
US Treasury Bond /30-year 3.09% 30 years
Est. MTM
Loss
-2%
-0.4% 68%
UST Rates ↑ 100bps
1.319x
Est. MTM
Loss
Historic Prob.
%
Risk to
Reward
-9%
-18%
Stress Test #1 Stress Test #2 Stress Test #3 Stress Test #4
SPX ↓ -9%
Historic Prob.
%
68%
68%
68%
Risk to
Reward
1.373x
0.214x
0.176x
Est. MTM
Loss
-4%
-0.9%
UST Rate ↑ 200bps
Est. MTM
Loss
-17%
-31%
SPX ↓ -14%
Historic Prob.
%
39%
39%
Historic Prob.
%
39%
39%
Risk to
Reward
0.616x
0.588x
Risk to
Reward
0.113x
0.099x
Est. MTM
Loss
-11%
-3%
-25%
-44%
SPX ↓ -25%
Historic Prob.
%
13%
Risk to
Reward
0.242x
13%
UST Rate ↑ 325bps
0.176x
Est. MTM
Loss
Historic Prob.
%
13%
13%
Risk to
Reward
0.074x
0.070x
Est. MTM
Loss
-33%
-15%
Est. MTM
Loss
-41%
-62%
SPX ↓ -50%
Historic Prob.
%
2%
Risk to
Reward
0.081x
2%
UST Rate ↑ 600bps
0.034x
Historic Prob.
%
2%
2%
Risk to
Reward
0.045x
0.050x

Volatility of an Impossible Object
Modern financial markets are an impossible object
Volatility of an impossible object is our changing perception of risk
Illustration by Brendan Wiuff based on concept by Christopher Cole
25

Volatility of an Impossible Object
What is not priced into markets that will seem as obvious in 10 years as it is laughable today?
26

Post-Modern Economy
Post-Modern Economy & “Simulacra and Simulation”
Baudrillard recalls Borges fable about cartographers of a great empire who drew a detailed map
When the empire collapses the map is accepted as truth and the empire forgotten
In the postmodern economy market expectations are more important to fundamental growth than the reality of supply and demand the market was designed to mimic
What Baudrillard calls “the desert of the real” is what Bernanke identifies as the “wealth effect”
The real economy is not slave to the shadow banking system… our economy IS the shadow banking system … the empire is gone and we live in the abstraction
27

Volatility can be more than just FEAR
Volatility
Markets
Fiat
Currency
28

Truth and Volatility
Volatility as a concept is widely misunderstood. Volatility is not fear. Volatility is not the
VIX index. Volatility is not a statistic or a standard deviation, Black-Scholes input, or any other number derived by abstract formula.
Volatility is no different in markets than it is to life.
Regardless of how it is measured volatility reflects the difference between the world as we imagine it to be and the world that actually exists
We will only prosper if we relentlessly search for nothing but the truth, otherwise the truth will find us through volatility the Truth is that Capitalism can save us… but First We Must Find a Way to Save Capitalism
29

Reference Material & Acknowledgements
Artemis Research:
Volatility of an Impossible Object: Risk, Fear, and Safety in Games of Perception
Volatility at World’s End: Deflation, Hyperinflation and the Alchemy of Risk, March 30, 2012
Fighting Greek Fire with Fire: Volatility Correlation, and Truth, September 30, 2011
Is Volatility Broken? Normalcy Bias and Abnormal Variance, March 30, 2011
The Great Vega Short- volatility, tail risk, and sleeping elephants, January 4, 2011
Unified Risk Theory - Correlation, Vol, M3 and Pineapples, September 30, 2010
Artwork:
"Volatility at World's End" by Brendan Wiuff 2012 / copyright owned by Artemis Capital Management LLC
"Volatility of an Impossible Object" by Brendan Wiuff / Concept by Christopher Cole 2012 / copyright owned by Artemis Capital Management LLC
“Jack-o-Lantern” Istock photo / used based on purchase of rights
“Ocean Waves” Istock photo / used based on purchase of rights
"Odysseus facing the choice between Scylla and Chrybdis" by Henry Fuseli 1794 / public domain
"Penrose Triangle, Devil’s Turning Fork & Necker’s Cube” Derrick Coetzee / Public Domain
"Liberty Leading the People" by Eugène Delacroix 1830 / public domain
Ocean wave pictures provided by istockphoto.com
Reference Material:
“Simulacra and Simulation” by Jean Baudrillard / University of Michigan / 1994
"A Tale of Two Indices" by Peter Carr & Liuren Wu December 22, 2005
“VIX Derivatives: A Poor Practitioner’s Model” Maneesh Deshpande / May 19 2011
“Understanding VIX Futures and Options” Dennis Dzekounoff; Futures Magazine/ August 2010
“The Volatility Surface: A Practitioner’s Guide.” Jim Gatheral / John Wiley and Sons, Hoboken, NJ, 2006
"Think Fast and Slow" by Daniel Kahneman / Farrar, Staus and Giroux 2012
“Options, Futures, and Other Derivatives” John C. Hull, Fifth Edition; Prentice Hall 2003
"Lifetime Odds of Death for Selected Causes, United States, 2007" / National Safety Council 2011 Edition
“Volatility Trading” Evan Sinclair, Wiley Trading 2008
"Dying of Money: Lessons of the Great German and American Inflations" by Jens O. Parsson / Wellspring Press 1974
"Economics of Inflation; A Study of Currency Depreciation in Post-War Germany" by Constantino Bresciani-Turroni Out of Print / 1968
“Variance Swaps” Peter Allen, Stephen Einchcomb, Nicolas Granger; JP Morgan Securities / November 2006
"Laughter in the Dark - The Problem of the Volatility Smile" by Emanuel Derman May 26, 2003
“Robust Hedging of Volatility Derivatives” Roger Lee & Peter Carr; Columbia Financial Engineering Seminar / September 2004
“More than you Ever Wanted to Know About Volatility Swaps” Kresimir Demeterfi, Emanual Derman, Michael Kamal & Joseph Zou; Goldman Sachs / March 1999
“The Performance of VIX Option Pricing Models: Empirical Evidence Beyond Simulation” Zhiguang Wang; Florida International University / April 2009
“Recent Developments in VIX Exchange Traded Products” Maneesh Deshpande/ April 3, 2012
"Deflation: making sure 'it' doesn't happen here" by Ben S. Bernanke (speech) / US Federal Reserve November 2002
"US Options Strategy TVIX Explosion Drives Vol-of-Vol Higher" Deutsche Bank February 23, 2012
"Unknown Unknowns: Vol-of-Vol and the Cross Section of Stock Returns" Guido Baltussen, Sjoerd Van Bekkum and Bart Van Der Grient / Erasmus School of Economics & Robeco Quantitative
Strategies/ July 30, 2012
Definition of "Impossible Object" / Wikipedia / http://en.wikipedia.org/wiki/Impossible_object
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Artemis Capital Management – Contact Information
Artemis Vega Fund L.P.
Artemis Capital Management, L.L.C.
520 Broadway, Suite 350
Santa Monica, CA 90401 info@artemiscm.com www.artemiscm.com
Christopher Cole, CFA
Managing Partner & Portfolio Manager
(310) 496-4526 phone
(310) 496-4527 fax c.cole@artemiscm.com
Key Information/ Biography
Christopher Cole, CFA
Managing Partner & Portfolio Manager / Artemis Capital Management LLC
Christopher R. Cole, CFA is the founder of Artemis Capital Management LLC and the portfolio manager of the
Artemis Vega Fund LP. Mr. Cole’s core focus is systematic, quantitative, and behavioral based trading of exchange-traded volatility futures and options. His decision to form a fund came after achieving significant proprietary returns during the 2008 financial crash trading volatility futures. His research letters and volatility commentaries have been widely quoted including by publications such as the Financial Times,
Bloomberg, International Financing Review, CFA Magazine, and Forbes. He previously worked in capital markets and investment banking at Merrill Lynch. During his career in investment banking and pension consulting he structured over $10 billion in derivatives and debt transactions for many high profile issuers.
Mr. Cole holds the Chartered Financial Analyst designation, is an associate member of the NFA, and graduated Magna Cum Laude from the University of Southern California.
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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.
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General Disclosure Statement
An investment in the Partnership and strategies discussed in this document involve a number of significant risks. For a full list of potential risk factors please review the
Offering Memorandum. Prospective Limited Partners should read the entire Memorandum and the Partnership Agreement and consult with their own advisers before deciding whether to invest in the Partnership. In addition, as the Partnership’s investment program develops and changes over time, an investment in the Partnership may be subject to additional and different risk factors. Prospective investors should also consult with their own financial, tax and legal advisors regarding the suitability of this investment. Artemis Capital Management, L.L.C. does not guarantee returns and investors bear the risk of losing a substantial portion of or potentially their entire investment.
All 2009 performance numbers quoted within this document are derived from financial statements that were audited by Spicer Jeffries. Proprietary trading results for
White Fox, LLC (the “Proprietary Account”) are presented within this document that were verified by Spicer Jeffries. The Principal of the General Partner, Christopher R.
Cole, used the Proprietary Account as a vehicle to incubate the investment strategy of the Partnership with personal funds as well as those of close family members. Note that no management or performance fees were charged to the Proprietary Account profiled. Accordingly, the Pro Forma Performance presented in this document includes imposition of a 2% Management Fee and 20% Performance Allocation (in line with those charged against the Partnership).Past performance is not indicative of future returns.
Commodity Pool Operator Disclosure Statement
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE
AWARE THAT FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET
ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR
ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR
THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETIONS OR EXHAUSTION OF THEIR ASSETS. THE
OFFERING MEMORANDUM CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AND A STATEMENT OF THE PERCENTAGE RETURN
NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT .
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL.
THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THE OFFERINGMEMORANDUM, INCLUDING A
DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED
OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT
OR DIMINISHED PROTECTIONS TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE
ENFORCEMENT OF THE RULES OR REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE
EFFECTED.
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