The art of harnessing volatility

With uncertainty in financial markets seemingly at an all-time high this year, structures highly correlated to the Vix volatility index have found favour with retail and institutional investors alike. As well as selling volatility outright, structurers are developing strategies that seek to exploit skew. Magda Ali reports

Natural disasters serve as timely reminders of the substantial risk of investing in financial markets. In times of crisis, normally uncorrelated asset classes can suddenly exhibit correlation and investments known for delivering alpha without beta can appear to generate high beta with modest alpha. However, despite concerns from market participants that disruptions resulting from the eurozone debt crisis, political turmoil in the Middle East and the broader impact of the Japanese tsunami could