Volatility, correlation and skew too

Surviving skew

Volatility and skew sent dealers on a rollercoaster ride

Painful memories of the 2008 market dislocations were evoked in May, as banks were presented with a remarkably similar set of violent upsets in volatility, skew, dividends and correlation.

In the second half of 2008 and early 2009, a spike in volatility and correlation, combined with a collapse in dividend expectations, was disastrous for virtually all dealers. Turmoil was particularly acute in the months following the Lehman Brothers collapse in September 2008, with some equity derivatives