Implied equity volatility continued to tumble this year, with the Chicago Board of Trade’s S&P 500 Vix Index falling from 18.2 percentage points at the start of January to 12.3 by late December, compared with levels of more than 30 points in the first quarter of 2003. And this precipitous decline proved a major headache for all equity derivatives dealers.
Arguably, the impact was most noticeable for investment banks whose primary focus is geared to handling large vanilla volumes. This was beca
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