Introduction

In the final week of September, the Chicago Board Options Exchange's Vix index, which measures the market's expectation of 30-day volatility on S&P 500 index option prices, was trading at a level comfortably below 20%.

Assuming the efficiency of markets, it appears that traders' assessment of near-term volatility had eased dramatically from August 16, when the Vix touched 37.5%, its highest intra-day level since October 2002.

For many equity derivatives dealers, the initial surge in volatility

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