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Investors at a crossroads: Implications for risk management, trading and the real economy
Journal of Risk Management in Financial Institutions,
2
(1),
26-35
(2008)
Abstract
The recent market turmoil has increased the risk aversion of investors for some structured products. The withdrawal from opaque and complex structures, however, has not affected all asset classes to the same extent, and, away from credit, demand for yield enhancement has continued almost unabated. This is not a temporary phenomenon, but is part of a secular trend. The size, scale and leverage of this investing activity are such that it is changing the relationships between implied and realised volatility, the distributional features of asset returns and blurring the distinction between ‘underlying’ and ‘derivatives products’. The implications for risk management are discussed.
Keywords: implied volatility; realised volatility; structured products; yield enhancement; risk management
The full article is available to subscribers to the journal.
Author's Biography
Riccardo Rebonato is Global Head of Market Risk and Global Head of the Quantitative Research Team at RBS, a Visiting Lecturer at Oxford University (Mathematical Finance) and Adjunct Professor at Imperial College (Tanaka Business School). He sits on the Board of Directors of ISDA and on the Board of Trustees for GARP. He holds doctorates in nuclear engineering and solid state physics and was a research fellow in physics at Corpus Christi College, Oxford, UK. He is the author of the books Plight of the Fortune Tellers — Thoughts on the Quantitative Management of Financial Risk (2007), Volatility and Correlation in Option Pricing (1999, 2004), Modern Pricing of Interest-Rate Derivatives (2002) and Interest-Rate Option Models (1996, 1998). His papers on finance have been published in several academic journals.
Citation
Rebonato, Riccardo (2008, October 1). Investors at a crossroads: Implications for risk management, trading and the real economy. In the Journal of Risk Management in Financial Institutions, Volume 2, Issue 1. https://doi.org/10.69554/COIZ3003.
© Henry Stewart
Publications LLP
Publications LLP