What characterizes market volatility arbitrage funds?

Market volatility arbitrage funds are characterized by employing long volatility and market volatility neutral strategies. This approach involves taking advantage of price discrepancies resulting from market volatility. Such funds may take positions that become profitable when actual market volatility diverges from implied volatility.

When these funds go long volatility, they anticipate increases in volatility, which could arise from unexpected market events. Meanwhile, adopting a market volatility neutral stance helps mitigate risks associated with directional movements in the underlying asset prices, ensuring that the fund's performance is more closely linked to changes in volatility rather than movements of the market itself.

The other options suggest approaches that do not align with the core principles of market volatility arbitrage. For example, focusing solely on equity investments limits the scope and strategies related to volatility. Similarly, classifying strategies as purely speculative overlooks the systematic nature of the strategies typically employed by these funds, which are based on mispricing rather than outright speculation. Lastly, a conservative investment in bonds does not reflect the inherent focus on volatility and market inefficiencies, as bond investment strategies don't typically engage with the dynamics of volatility arbitrage.