RISK MANAGEMENT

Last year, in a post entitled Credit Derivatives-Is This Time Different we wrote about credit derivatives and their potential impact on the markets. Since then, they have started attracting more and more attention. For example, Bloomberg recently reported that collateralized loan obligations (CLO), a type of complex credit derivatives, are becoming a favorite financing vehicle…

Read More Are Collateralized Loan Obligations the New Debt Bombs?

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

Will this low volatility persist and can a large market decline happen in this environment? Aaron Brown recently published an article in which he pointed out that a large jump in realized volatility happens only when the VIX is above 20. …the important thing is that there aren’t big surprises at low levels of the…

Read More How Long Will Low Volatility Last?

In the continuation of the “Low Volatility is Not a New Normal” theme, Adam Samson of Financial Times published another post based on the recent report by JPMorgam which suggested using VIX options for managing the risks. Risk assets, like stocks, have been rallying “for years”, sending market volatility near “record lows… While fundamentally volatility…

Read More VIX Options: Should We Buy Them When Volatility is Low?