Aegis: A Dynamic Risk Control Framework
Based on the Volatility Pressure Index (VPI)
A framework that reduces drawdowns while maintaining market participation.
Long-term performance comparison of Aegis + Trend Following, Trend Following, and SPY.
Abstract
We introduce the Volatility Pressure Index (VPI), defined as the logarithmic change in variance.
VPI captures the dynamics of volatility as a cumulative state variable rather than a static level.
Based on this framework, we propose Aegis, a dynamic risk control system that continuously adjusts market exposure.
A forward test on SPY shows that Aegis reduces drawdowns while improving risk-adjusted returns.
This study provides a new perspective on volatility as a dynamic process described by state and change.
Download Full Paper (PDF)