Tails and Options Pricing
In a headline dependent market, things can change in a hurry. We saw some of this last week, as we had surprising progress in trade talks with the EU. We could get a number of game-changing headlines in the next few weeks: Substantial trade progress (or lack thereof) with any of our key trading partners, Any surprising moves by central banks (in particular the BOJ), Any surprising economic data, Any surprisingly large move in equities, and Any serious frictions with Iran/Russia/China. In addition, we always have the usual terrorism, Trumpidity, etc risks. Usually, I’ll look at the curve and see [...]