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Ep. 208: David Dredge on Inflation, Underpriced Risks and Sharpe Ratio Flaws

Mar 22, 2024

The podcast discusses the BoJ's timid hike, fiscal dominance in bond buying, central banks' shifting views on inflation, and strategies for risk management in volatile markets. David Dredge, CIO of Convex Strategies, shares insights on portfolio positioning, utilizing convexity for risk mitigation, navigating market volatility, and recommended books for understanding economics.

58:58

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Episode guests

David Dredge

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Episode notes

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Quick takeaways

Analyzing VIX futures structure reveals market risk perception and opportunities for risk assessment.

Incorporating third and fourth moments in volatility analysis aids in identifying mispriced risk areas.

Observation of market behavior over prediction is emphasized for risk management and strategic investment decisions.

Deep dives

Understanding Market Dynamics through Volatility Analysis

Analyzing the term structure of VIX futures can indicate where market risk is perceived. Steep curves suggest buyers at the back end and sellers at the front, anticipating volatility spikes. Assessing options pricing across equity and interest rate markets based on skew (third moment) and convexity (fourth moment) can reveal areas with mispriced risk and value.

Introduction

2min

Central Bank Policies and Market Dynamics

14min

Inflation Perception and Market Dynamics

6min

Strategic Risk Management and Portfolio Positioning in a Changing Financial Landscape

3min

Harnessing Convexity for Risk Mitigation in Large Portfolios

12min

Navigating Volatility: Strategies and Risks

19min

Recommended Books for Understanding Technical and Historical Aspects of Economics and Finance

2min

Exploring Insights on Financial Analysis and Observations

2min

David Dredge is the Chief Investment Officer of Convex Strategies, which is an agnostic value investor in volatility. David has over 30 years experience managing risk across global markets. Prior to launching Convex Strategies, David served as a Managing Director and Portfolio Manager at Artradis Fund Management in Singapore, where he was responsible for the fixed income aspects of their volatility strategy. Earlier in his career, David built and ran Asian and Global EM trading businesses for RBS (ABN AMRO Group), Bankers Trust, and Bank of America. He currently sits on the Monetary Authority of Singapore Markets Committee (SFEMC). This podcast covers: the problem with the BoJ’s timid hike, fiscal dominance and the need for bond buyers, how central banks have shifted goalposts on inflation, and much more.

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