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, …

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 …

The sell-off in the high yield bond Exchange Traded Funds space last month reminds us of an important risk factor: liquidity. But what exactly is liquidity risk? According to Aleksander Kocic, derivatives strategist at Deutsche Bank AG, Liquidity transforms the risk of default (the ability that the debtor may not …

Value at Risk (VaR) is an important risk measure that large financial institutions use for managing the risks and allocating capital. Wikipedia defines VaR as follows: Value at Risk (VaR) is a measure of the risk of investments. It estimates how much a set of investments might lose, given normal …

Last Thursday witnessed, again, another dramatic increase in volatility. The volatility index VIX spiked 44 percent to 16.04%, its highest daily close for the year. As shown below, the VIX futures term structure inverted in the short end. Two days before the event, Helen Bartholomew of Reuters warned that the …

It happened again, and again. Last Thursday volatility increased sharply at around 1.30 p.m, then it came back to normal at the end of day. For now, we ignore the cause. But this event reinforced our observation: sharp volatility spikes occur more and more frequently these days. In a low …

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 …

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 …

After a sharp move in the VIX a week ago, today the volatility index finished below 10 (9.99 to be exact). It looks like we are going into a low-volatility period again. Last week, just before the volatility spike, Mohamed A. El-Erian warned of the danger of investing in a …

In the previous posts entitled Where are the Cheap Hedges for Equity Portfolios? Now Is The Time to Hedge, But The Cost of Insurance Can Be Expensive, we outlined some solutions for finding inexpensive hedges in this low volatility environment. In this post we will continue to explore some more …