Wednesday, 5 December 2012
Chart of the Day - Convergence between VIX and V2X
"To every action there is always opposed an equal reaction." - Isaac Newton
The convergence between VIX and its European equivalent V2X - Source Bloomberg:
The last few days have seen a pick up in demand for downside protection on the S and P500, when it seems no one at the moment has nothing left to protect against in Europe, which explains somewhat the recent convergence move between the VIX and its European equivalent V2X - source Bloomberg:
Please note Futures have yet to realise this convergence.
As a reminder from our March conversation (The two main drivers of equity volatility), and as indicated by our Global Macro friends at Rcube at the time:
"The two main drivers of equity volatility are for us, credit availability (Merton model) and revisions of earnings forecasts estimates. Equity volatility is also logically driven by the direction and the magnitude of revisions of forward earnings estimates. In 2010 and again in 2011, equity vol spiked while earnings forecasts remained strong."
"Hesitation increases in relation to risk in equal proportion to age." - Ernest Hemingway