
Alpha Exchange
Anthony Morris, Global Head of Quantitative Strategies, Nomura International
Dec 8, 2023
Guest Anthony Morris, Global Head of Quantitative Strategies at Nomura International, discusses the vol risk premium in the equity market and credit spreads, as well as the credit risk premium. He also talks about the work his team is doing at Nomura in the Quantitative Investment Strategies business, highlighting the importance of considering strategy interactions and hidden co-movement in portfolio construction.
01:10:16
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Quick takeaways
- The interest rate volatility surface slopes downward, unlike the upward-sloping equity volatility surfaces, due to the mean-reverting nature of interest rates.
- Commodities exhibit high procyclicality and experience drawdowns during equity market drawdowns, highlighting the importance of understanding hidden comovements for effective risk management.
Deep dives
The Nature of Interest Rate Volatility
The interest rate volatility surface slopes downward, which differs from the upward-sloping equity volatility surfaces. This is due to the different nature of interest rates, which follow a mean-reverting process. The Formosa market, often blamed for this slope, is not a major cause of the volatility surface shape. While the market influences seasonality and dealer hedging, it does not significantly impact the overall volatility surface shape.
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