Quick Update on Market Risk……

Ok we have had our fair share of event risk  so far this year. Ukraine, Israel, Portugal  to name but a few….and  we now have Yellen telling us that the Fed may hike the rates earlier than forecast. And guess what ? The Vix is still trading in the low bottom quartile.vix

Though my shock Index  (ratio of  VIX volga and Vix over  21 days) did venture above its long term median value on the back of the Portugal  news, all  of my risk indicators remain  well entrenched in risk seeking  territory….


My  2-state Markov model continue to sell volatility…I am not sure I would but I can t fault the outcome of the model so far.


Bearing in mind the above I am  still  a bit quizzical  as of why risk is  trading so low. We are getting  indeed very little reaction from events that  once would have sent the VIX flying into the 20 to  25% range . The only rationale I have is that Investors are now accepting that  growth is significantly  taking hold and therefore investment flows are  logically channelling  into risky assets and carry trades. Also there  is  now a strong understanding  that central banks   are determined in doing  whatever is necessary to support growth and rid of systemic risk. This clearly  has a strong dampening effect  on any risk spikes, but lets not get too complacent about it…