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Risk distortions created by liquidity glut: Watchpoint for structured note backers
Journal of Risk Management in Financial Institutions,
1
(1),
12-16
(2007)
Abstract
This paper examines the risk implications of persistently low volatility across capital markets. While a combination of globalised market efficiencies and an abundance of excess liquidity have worked to suppress volatility in recent years, investors' requirement for yield in this low volatility environment is resulting in an overhang of residual and correlated risk in the marginal part of risk distribution. The paper concludes that as existing metrics continue to be focused on localised, volatility-based measures of riskiness, this overhang remains dangerously opaque.
Keywords: volatility; monetary policy; liquidity; systemic risk; derivatives
The full article is available to subscribers to the journal.
Author's Biography
Richard Wise was educated at Cambridge University, graduating with a double first in mathematics in 1990. He worked at the regulatory forbearer of the UK Financial Services Authority, the Securities and Futures Authority, as a risk analyst before joining JP Morgan Chase in 1995. He has worked in various roles at JP Morgan including being an interest rate derivative trader in the London office prior to relocating to Japan. He has spent the last seven years in Japan building the market risk management function for Asia-Pacific. He is now in a global role heading risk management for the institutional equities business of JP Morgan.
Citation
Wise, Richard (2007, December 1). Risk distortions created by liquidity glut: Watchpoint for structured note backers. In the Journal of Risk Management in Financial Institutions, Volume 1, Issue 1. https://doi.org/10.69554/KZAY8781.
© Henry Stewart
Publications LLP
Publications LLP