VOL10: Why We All Need Volatility ft. Cem Karsan
Top Traders Unplugged
Niels Kaastrup-Larsen
4.8 • 712 Ratings
🗓️ 2 February 2022
⏱️ 83 minutes
🧾️ Download transcript
Summary
Hari Krishnan is joined today by Cem Karsan, to discuss feedback loops across different markets, the decision to manage outside money, how institutions make trading decisions, the global macro effects from COVID-19, the importance of dealer flows in the markets, the feedback loop between options and their underlying assets, and approaches to delta hedging.
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In this episode, we discuss:
- How market behaviour is often intertwined
- Why Cem chose to manage outside capital
- The thinking behind institutional market moves
- How the global pandemic affected markets
- Dealer flows
- Feedback loops
- Delta hedging
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Episode TimeStamps:
00:00 - Intro
02:17 - Cem’s background, and current work
19:18 - The decision to manage outside money
24:06 - The trades that institutions like to make
30:22 - Feedback loops within markets
34:17 - The dynamic between futures and options
51:15 - Using Econophysics to find hedging methods
53:40 - Building various volatility models and research using toy models
57:05 - Approaches to Delta hedging
01:00:11 -Changes to qualitative features of overnight indices
01:03:12 -Investment products on the VIX and effects on the S&P 500
01:10:09 -The feedback loop between inflation, deflation and central bank rate policies
01:20:01 -Whether or not there is an asymmetry between deflation and inflation risk
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Transcript
Click on a timestamp to play from that location
| 0:00.0 | Whether you own stock or not, everybody is long. |
| 0:09.0 | There's about 50 trillion in domestic equities, public equities. |
| 0:14.0 | There's about another, I'm doing round numbers here, 50 trillion international equities. |
| 0:20.0 | And then there's about 400 trillion, |
| 0:22.4 | give or take, long assets. And that includes real estate, monities, and bonds, obviously. And |
| 0:30.1 | that $500 trillion is mostly just unhedged, right? It's just a long investment and just sits there. And for the most |
| 0:41.2 | part, people didn't hedge that much. The concept of insurance on that was something that was |
| 0:48.1 | slow to build. But it's been growing. And that demand for insurance for long assets is ultimately what underpins everything |
| 0:56.9 | that we talk about. |
| 0:59.9 | For me, the best part of my podcasting journey has been the opportunity to speak to a huge |
| 1:05.1 | range of extraordinary investors from all around the world. |
| 1:08.4 | In this series, I've invited one of them, who also happens to be a |
| 1:11.7 | longtime friend, namely Harry Crisland, to host a series of in-depth conversation on the topics |
| 1:17.4 | of volatility, risk, and portfolio protection. In today's world, portfolio construction is fast |
| 1:23.6 | moving to the top of the agenda of many investors as they try to analyze and understand |
| 1:28.5 | the riskiness of their portfolio. With ever increasing uncertainty around the globe, knowing |
| 1:34.1 | if you are essentially long or short volatility in your portfolio can mean the difference |
| 1:38.6 | between ruin and survival when the next crisis emerge. The aim of these conversations is to try and understand |
| 1:45.6 | the experiences that have influenced these highly specialized market participants and the processes |
| 1:51.6 | they follow to harness their returns so that we can all become better informed investors. |
| 1:57.3 | And with that, please welcome Harry Christen. |
| 2:00.6 | Thanks very much, Neels, for this introduction. |
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