Alpha Exchange

As we cue up some new guests for the Alpha Exchange, some reflections from your host on the Black Scholes model and its 50th anniversary. No model is perfect and traders must grapple with real world frictions not entertained by the model. I discuss how option market participants make adjustments and why. Hope you enjoy!  

In a world bubble for the Alpha Exchange podcast, the words vol, carry and convexity would be prominent. And in this episode, featuring Amy Wu Silverman, the Head of Equity Derivatives Strategy at Royal Bank of Canada, we dive into these concepts head on. First, we learn about Amy’s experience in structured rates when, in and around 2007, Fannie and Freddie were the go-to credit to which all kinds...

There's always a bull market somewhere, and in today's climate of hyper short termism, both volume and commentary are thriving in the land of zero days to expiry options. While the risk characteristics of ODTEs are generally agreed on, the directionality of the flows and resulting positioning remain subjects of vigorous debate. With this in mind, it was a pleasure to welcome Nitin Saksena, the Hea...

The hedge that carries positively but delivers convex returns during a market panic is about as elusive as our lawmakers coming together in bipartisan fashion. As head of option strategies at AQR, Roni Israelov not only confirmed this but saw in the empirical data distinctly unpromising results for hedging strategies that utilized put options. Trained with a PhD in Financial Economics from Carnegi...

Welcome to a special edition of the Alpha Exchange, one in which your host and guest are one and the same. Above all, our conversations on this podcast are aimed at helping you think about risk. After all, it was the Spanish philosopher George Santayana who famously said, “those who forget history are doomed to repeat it.” This podcast has three parts. First, an update on a project I’ve been worki...

What has experience taught us about consequential market risk events? First, volatility in asset prices can materialize when a strongly held consensus view is shattered. Presented with “new news” – about defaults, about inflation, about earnings – investors may be forced to shed exposures, right-sizing their risk allocations to this new state of the world. Market vol episodes can be especially pro...

25 years post the chaotic unwind of Long Term Capital Management, there are lessons a plenty to be gleaned from this event. With this in mind, it was a pleasure to welcome acclaimed writer Roger Lowenstein, author of the famous book “When Genius Failed”, to the Alpha Exchange. His work is a compelling chronical of the vast success but ultimate failure of this storied hedge fund. We discuss some of...

Welcome to the Alpha Exchange Q1 2023 Review, in which we assess some of the trends in market risk that have recently been important. We discuss gold, the performance of VIX ETP strategies and the return of traditional risk on/risk off. We also spend time dissecting changes in the shape of the S&P 500 Index volatility skew and commenting on that well known put spread collar. We finish with some in...

I like to say that you learn the most in markets by studying the periods when things go horribly wrong. And in this spirit, Alpha Exchange guests are often asked to reflect back on risk events of great consequence. 2023 marks the 25th anniversary of the LTCM fiasco, an event too long ago to matter for anyone under the age of 40, even as there are valuable lessons to be had from this giant portfoli...

There are lies, damn lies and statistics as the saying goes, and about the latter, Adam Parker knows a thing or two. Armed with a Phd in stats, he began his Wall Street career as a semi’s analyst at Sanford Bernstein in 1999. Reflecting back on the deep dive research the firm was known for, he notes that today’s rapid fire information environment requires especially efficient communication to clie...

With 3 decades in markets, Jon Golub’s career is split evenly between the buyside and sell-side. Reflecting on his early days in the industry, Jon notes the especially benign environment that characterized the 90’s, a period of post-Cold War geopolitical stability, with the trauma of 70’s inflation sufficiently in the rear view even as the tail wind of lower interest rates was still a positive for...

Sketching out a business plan in 2012, Eric Liu and his Co-founders saw an opportunity to create a product that simplified the world of macro for investors. Vanda Research was born, a firm that seeks to connect the top-down with the bottom up and in the process, fill a gap by providing clients with shorter term tactical research ideas. A decade later, the evolution of Vanda leans heavily on the co...

Rebecca Patterson has always sought out new career challenges, willing to take risks in the process. Amidst the Asian financial crisis in 1997, Rebecca was hired into a Strategist position within the asset management side of JP Morgan, giving her early exposure to one of those 100 year market storm events that seems to actually happen every 10 years. She began building out a macro, data driven fra...

Among the major asset classes, no market has experienced a sea-change in volatility levels more so than the US government bond market over the past few years. Consider that the MOVE index reached the low 40’s in 2019, spiked to 160 during the March’20 Covid market crisis, descended below 40 in late 2020 and then surged in 2022, again reaching 160. It is against this fast-changing risk backdrop, an...

For Francois Trahan, early exposure to econometric models that sought to forecast business conditions illustrated the importance of changes in interest rates. Over a 25 year time frame, he’s developed a framework that utilizes variables that lead the business cycle and consistently have information content with respect to where markets are heading. We talk about challenging times for risk assets –...

A "beaten path" refers to a route that is frequently traveled. In markets, for years, this path led investors to be long both stocks and bonds in unison under the premise that duration exposure would mitigate losses during a sell-off in risk assets. In 2022, amidst sharply rising inflation, investors learned painful lessons that stock and bond prices can become highly correlated. For Dylan Grice,...

Welcome to a special year-end episode of the Alpha Exchange where we look back on market risk dynamics that defined 2022, a painful year by nearly all counts. We’ll finish by looking forward, contemplating the set of uncertainties investor will be confronted with in 2023, sharing a few recommendations on the hedging, alpha generation and portfolio construction front. As 2022 is in the books, the A...

In the world of bonds, few firms are as powerful and enduring as PIMCO. And few investors are as storied as Bill Gross whose impact on active fixed income trading and risk management has been substantial. The “Bond King”, by Mary Childs, is a compellingly researched and written book on these two subject matters. Through hours of direct conversation with Bill Gross, discussions with many of the sig...

We next turn to Scott’s time at Secor Asset Management, running portfolio solutions and working with global pension plans on asset/liability risk. Scott shares his perspective on the recent blow-up in the long-dated Gilt market, stating that in some ways this was an accident waiting to happen given the mismatch in duration exposure required and that accessible through the cash Gilt market. The bal...

Originally trained as an economist and now the Chief Global Strategist at Principal Asset Management, Seema Shah spends her time looking at the intersection of fundamentals, technicals and valuation. Our conversation first considers the low growth, low inflation era that persisted post GFC but pre-Pandemic and here Seema distinguishes between strong economic expansion and favorable market conditio...

Market risks come in all shapes and sizes. A good starting point might be to categorize them as economic, financial, or monetary. But increasingly, and unfortunately, geopolitical risk is a threat that must be closely monitored and understood. And in this context, it was a pleasure to welcome Robert Dannenberg to the Alpha Exchange. Spending his entire career as an operations officer in the CIA, R...

For Dan Corcoran, a fascination with option pricing began in high school. By college, he was coding up pricing models and trading strategies in MatLab. Compelled by the multi-dimensional set of inputs driving prices, in 2014 Dan set out to found Volos, the financial backtesting and consultancy firm he is now President of. Dan shares with us his love for ski jumping and the manner in which dynamic...

A teenager in Iran during the 1979 revolution, Maziar Minovi experienced first-hand how disruptive the impact of politics can be on economic security. Motivated by this personal experience he would pursue a Ph. D. in international finance and economic development and ultimately find his way to the investment industry in the early 1990s, just as the Tequila Crisis was underway. Maziar shares early...

Welcome to a special episode of the Alpha Exchange, one where we look back on the historic event that was the 1987 stock market crash. We review the seismic crash in prices that occurred 35 years ago, on October 19th, 1987, when the DOW and S&P 500 fell by 22.6% and 20.4%, respectively. It was a day that the VIX, had it been a calculated index at that time, would have closed at 150, almost double...

Dennis Davitt has spent more than 3 decades in option markets. Getting his start in the crude pit on the NYMEX, he soon thereafter moved to equity derivatives, a product he’s run risk in across both the sell-side and buy-side through many cycles. Through our conversation, we learn of the strong appreciation for liquidity – especially as it relates to dynamic products like options – that Dennis has...