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We have written many blog posts about the increase in volatility of volatility. See, for example Is Volatility of Volatility Increasing? What Caused the Increase in Volatility of Volatility? Similarly, last week Bloomberg reported, The sudden rise in volatility in February and March showed that even with strong growth fundamentals, financial markets remain vulnerable. Since…

Read More Black Swan and Volatility of Volatility

The US equity market just reached new highs, and it broke many records.  For example, Bloomberg reported that the US market had not been overbought like this in 21 years. The S&P 500 Index’s superlative start to 2018 is making a contrarian technical indicator look silly. The benchmark gauge is poised to end trading Thursday…

Read More Correlation Breakdown

Peter Carr recently gave a talk on volatility trading at the Fields institute. Summary: In general, an option’s fair value depends crucially on the volatility of its underlying asset. In a stochastic volatility (SV) setting, an at-the-money straddle can be dynamically traded to profit on average from the difference between its underlying’s instantaneous variance rate…

Read More Volatility, Skew, and Smile Trading

Quantitative trading has become a topic du jour lately. Many investors have been considering allocating more capital to quantitative funds. However, not all experts share the same opinion regarding the merits of quantitative strategies. There are even quants among the skeptics. Emanuel Derman is one of the most respected experts in the quant community. He…

Read More Do Quantitative Trading Models Work?