An analysis of why volatility indexes are relevant

Financial markets are about making decisions in moments of uncertainty. The one certainty one can make is that no one has a crystal ball, nor can anyone predict with certainty what will occur in the future. Although seeking methods to manage portfolio volatility and tail risk may fall out of fashion from time to time based on market sentiment, it should always be utilized as part of the risk management process. Volatility indexes are instruments that may assist in the risk management process. Table 1: VSTOXX® Futures yearly volume and open interest as of October 2014 Source: Eurex Exchange’s monthly…

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