Whitepaper

Is there a ‘new normal’ in Volatility Markets?… Probably not!

The spike in implied volatility this past February was more acute than what could typically be explained by normal market gyrations. The market correction along with the surge in volatility was more perceptible given, perhaps, the complacency that has taken hold amidst a prolonged period of historically low volatility. This got many observers very excited, in part owing to the volley of Exchange Traded Products that were specifically designed and sold to profit from a low and lowering volatility environment. These instruments subsequently faltered in dramatic fashion after the surge in volatility. Many felt compelled to opine, proposing theories such as ‘volatility regime shifts’ and a ‘new normal’ in volatility markets. We look at whether any of these ideas hold credence.