Investors at a crossroads: Implications for risk management, trading and the real economy

Riccardo Rebonato

Journal of Risk Management in Financial Institutions, 2008, vol. 2, issue 1, 26-35

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 (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:aza:rmfi00:y:2008:v:2:i:1:p:26-35

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