Don’t fret about elevated skew, vol experts say
Extreme relative cost of tail risk hedging is driven by flows more than fear
Downside equity skew — a measure sometimes taken as an indicator of nervousness in markets — has reached all-time highs, leaving investors wondering whether they should worry. Volatility experts say not. In fact, high skew may present an opportunity.
Rather than signalling trouble ahead, the extreme skew is due mostly to market flows, the experts argue.
“The volatility surface is always about
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