Flirting with Models Dean Curnutt - The Reflexivity of Equity Volatility (S6E16)
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Sep 11, 2023 Dean Curnutt, founder of Macro Risk Advisors, discusses the nature of risk in markets, touching on various crises, reflexivity, risk recycling, and the evolving role of the Fed. They explore the 1987 stock market crash, Long-Term Capital Management, the 2008 Financial Crisis, the XIV implosion of 2018, and the 2020 COVID crisis. This episode is a must-listen for risk-focused individuals and those interested in market dynamics.
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1987 Crash's Impact on Dean
- Dean Curnutt's study of the 1987 crash was pivotal to his career and market understanding.
- He highlights how portfolio insurance and rising yields conspired to overwhelm the market.
Fed Communication Alters Market Risk
- The Fed's shift from purposeful obfuscation to transparency changed market behavior.
- Explicit guidance can create near-term certainty but leads to concentrated risk-taking and potential market stress.
LTCM and Black-Scholes Influence
- LTCM was a tech-driven firm deeply embedded in Black-Scholes theory for pricing.
- Dean admired their market-making approach but noted overconfidence and crowding risks.