With more than two decades of experience trading and managing risk in sell-side and buy-side roles, Mimi Duff has learned a thing or two about high finance. In the early 1990’s she cut her teeth writing research for agency and treasury securities at Goldman Sachs. She’d later move to trading, focused on making markets in the long end utilizing a framework for the relative value of securities across the curve.We review some of the prominent risk events she’s traded through including September 11th and the reverberations of volatility in market prices that resulted. Mimi makes the point that the emotional response to an event so tragic tests a trader’s capacity to manage risk. We also explore the GFC and the front row seat that Mimi had to this event. Running the swaps trading desk at Barclays, she was responsible for the interest rate exposure that came about through the Lehman acquisition, calculating first and second order risks and then implementing a hedging program in the market.Our conversation moves to her current role at GenTrust, a sophisticated wealth advisor catering to high net worth individuals, where she runs the NY Office. For Mimi, wealth management all starts with having a plan and a suitable client benchmark. In this context, we discuss the work that GenTrust does in delivering portfolio construction, diversification and tax planning services to ultra high net individuals and investment entities. In evaluating opportunities for clients, the team is willing to consider alternative, sometimes off-the-run risk exposures. But illiquidity risk is taken on only in instances where the expected return profile and diversification outcome is especially favorable. I hope you enjoy this episode of the Alpha Exchange, my conversation with Mimi Duff.

With more than two decades of experience trading and managing risk in sell-side and buy-side roles, Mimi Duff has learned a thing or two about high finance. In the early 1990’s she cut her teeth writing research for agency and treasury securities at Goldman Sachs. She’d later move to trading, focused on making markets in the long end utilizing a framework for the relative value of securities across the curve.We review some of the prominent risk events she’s traded through including September 11th and the reverberations of volatility in market prices that resulted. Mimi makes the point that the emotional response to an event so tragic tests a trader’s capacity to manage risk. We also explore the GFC and the front row seat that Mimi had to this event. Running the swaps trading desk at Barclays, she was responsible for the interest rate exposure that came about through the Lehman acquisition, calculating first and second order risks and then implementing a hedging program in the market.Our conversation moves to her current role at GenTrust, a sophisticated wealth advisor catering to high net worth individuals, where she runs the NY Office. For Mimi, wealth management all starts with having a plan and a suitable client benchmark. In this context, we discuss the work that GenTrust does in delivering portfolio construction, diversification and tax planning services to ultra high net individuals and investment entities. In evaluating opportunities for clients, the team is willing to consider alternative, sometimes off-the-run risk exposures. But illiquidity risk is taken on only in instances where the expected return profile and diversification outcome is especially favorable. I hope you enjoy this episode of the Alpha Exchange, my conversation with Mimi Duff.

Mimi Duff, Head of NY Office, GenTrust, LLC

Rocky Fishman

Market prices are the outcome of a myriad of factors. Geopolitical developments, the economy, the regulatory landscape and the actions of Central Banks all matter. So, too, do market participants and the set of products they utilize to assume or reduce risk exposures. For Rocky Fishman, the founder of newly formed derivatives strategy firm Asym 500, studying complex products and the mechanical flows they often generate is critical.Our discussion is a review of market risk episodes and how risk management schemes that use volatility as a direct input can accelerate price moves in the broad equity market to both the upside and downside. In this context, we discuss the Feb'18 XIV event as well as the rapid repricing of risk in August of 2015 when China re-pegged its currency versus the dollar. Both events speak to the importance of the positioning that can become lopsided when realized volatility has been especially low.We also talk about diversification and correlation. Here, Rocky makes the point that investors must respect the degree to which an impaired market can cause economically similar securities to become severely dislocated. Lastly, we talk about zero day to expiration options. Not seeing the case for Volmaggedon 2.0 at this point, his work at Asym500 will nevertheless be focused on carefully studying short-dated option flows. I hope you enjoy this episode of the Alpha Exchange, my conversation with Rocky Fishman.

Market prices are the outcome of a myriad of factors. Geopolitical developments, the economy, the regulatory landscape and the actions of Central Banks all matter. So, too, do market participants and the set of products they utilize to assume or reduce risk exposures. For Rocky Fishman, the founder of newly formed derivatives strategy firm Asym 500, studying complex products and the mechanical flows they often generate is critical. Our discussion is a review of market risk episodes and how risk management schemes that use volatility as a direct input can accelerate price moves in the broad equity market to both the upside and downside. In this context, we discuss the Feb'18 XIV event as well as the rapid repricing of risk in August of 2015 when China re-pegged its currency versus the dollar. Both events speak to the importance of the positioning that can become lopsided when realized volatility has been especially low. We also talk about diversification and correlation. Here, Rocky makes the point that investors must respect the degree to which an impaired market can cause economically similar securities to become severely dislocated. Lastly, we talk about zero day to expiration options. Not seeing the case for Volmaggedon 2.0 at this point, his work at Asym500 will nevertheless be focused on carefully studying short-dated option flows. I hope you enjoy this episode of the Alpha Exchange, my conversation with Rocky Fishman.

Rocky Fishman, Founder and CEO, Asym 500 LLC

Daniel Villalon

As Global Co-head of Portfolio Solutions at AQR Capital Management, Dan Villalon is primarily engaged in helping the firm’s clients address constantly evolving challenges around risk management. Central to these, of course, is the search for efficient sources of diversification. In this context, our discussion explores research his team has done in two primary areas.First, we talk about defending against drawdowns that are both fast and slow and back-tests that compare options-based hedging with strategies like trend following that do not require explicit premium payments. For rapid market sell-offs, like those that occurred during the GFC and the Covid crash, explicit, premium based insurance works well. This approach can suffer, however, as the market bottoms and recovers even as option prices remain high. Trend following strategies, while not as effective for sudden market plunges, tend to be more effective in offsetting losses that occur during slower drawdowns, as occurred in 2022.Dan makes the point that a robotic strategy that buys assets that have trended higher and sells those that have trended lower tends to work across asset classes and around the world, at odds with market efficiency. One possible explanation put forth is “under-reaction”. Here, investors respond to good news, but not initially by enough, leaving further gains on the table.Lastly, we talk about AQR’s recent work on international diversification. Noting that US stocks have been the place to be for 3 decades, the firm sees an important place for international equities going forward given the view that the tailwind of rising relative valuations in the US may be behind. I hope you enjoy this episode of the Alpha Exchange, my conversation with Dan Villalon.

As Global Co-head of Portfolio Solutions at AQR Capital Management, Dan Villalon is primarily engaged in helping the firm’s clients address constantly evolving challenges around risk management. Central to these, of course, is the search for efficient sources of diversification. In this context, our discussion explores research his team has done in two primary areas. First, we talk about defending against drawdowns that are both fast and slow and back-tests that compare options-based hedging with strategies like trend following that do not require explicit premium payments. For rapid market sell-offs, like those that occurred during the GFC and the Covid crash, explicit, premium based insurance works well. This approach can suffer, however, as the market bottoms and recovers even as option prices remain high. Trend following strategies, while not as effective for sudden market plunges, tend to be more effective in offsetting losses that occur during slower drawdowns, as occurred in 2022. Dan makes the point that a robotic strategy that buys assets that have trended higher and sells those that have trended lower tends to work across asset classes and around the world, at odds with market efficiency. One possible explanation put forth is “under-reaction”. Here, investors respond to good news, but not initially by enough, leaving further gains on the table. Lastly, we talk about AQR’s recent work on international diversification. Noting that US stocks have been the place to be for 3 decades, the firm sees an important place for international equities going forward given the view that the tailwind of rising relative valuations in the US may be behind. I hope you enjoy this episode of the Alpha Exchange, my conversation with Dan Villalon.

Daniel Villalon, Global Co-Head of Portfolio Solutions, AQR Capital Management

Corey Hoffstein

With an early passion for video games and teaching himself programming languages Q-Basic and C, Corey Hoffstein did not expect to ultimately wind up in money management. But exposure to various roles in the industry through an internship started him down the path, helping him see how to marry his love of computer science with markets.Now the CIO of Newfound Research, a firm he co-founded more than a decade ago, Corey is focused on delivering to investors the one free lunch they are entitled to: diversification. We spend most of the discussion here, with an emphasis on “return stacking”, a strategy that Newfound embraces to expand access to diversifying assets. In this light, a topic we spend some time on is trend following, a strategy that has proven to deliver attractive low correlation to stock and bond returns.Corey describes the manner in which the implementation of trend following is similar to the delta hedging of a long volatility position, allowing the strategy to provide some portfolio protection in risk-off events.And with risk-off in mind, we talk as well about “liquidity cascades”, research that Corey and his team have done to highlight the manner in which trades that live and breathe within the market’s ecosystem of risk can create spill-over effects that amplify asset price movements. I hope you enjoy this episode of the Alpha Exchange, my conversation with Corey Hoffstein.

With an early passion for video games and teaching himself programming languages Q-Basic and C, Corey Hoffstein did not expect to ultimately wind up in money management. But exposure to various roles in the industry through an internship started him down the path, helping him see how to marry his love of computer science with markets.Now the CIO of Newfound Research, a firm he co-founded more than a decade ago, Corey is focused on delivering to investors the one free lunch they are entitled to: diversification. We spend most of the discussion here, with an emphasis on “return stacking”, a strategy that Newfound embraces to expand access to diversifying assets. In this light, a topic we spend some time on is trend following, a strategy that has proven to deliver attractive low correlation to stock and bond returns.Corey describes the manner in which the implementation of trend following is similar to the delta hedging of a long volatility position, allowing the strategy to provide some portfolio protection in risk-off events.And with risk-off in mind, we talk as well about “liquidity cascades”, research that Corey and his team have done to highlight the manner in which trades that live and breathe within the market’s ecosystem of risk can create spill-over effects that amplify asset price movements. I hope you enjoy this episode of the Alpha Exchange, my conversation with Corey Hoffstein.

Corey Hoffstein, CIO, Newfound Research

Your host is back again, providing some thoughts and commentary on the recent period of low volatility in the equity market. With SVB and the debt ceiling uncertainty mostly in the rear-view, markets embraced the calm, experiencing just a single 2% up move and a single 2% down move in the first half of 2023. I break down the causes and consequences of lower volatility. Along the way, you’ll hear some talk on the gamma/theta trade-off, stock bond correlation, the price of upside calls in the S&amp;P 500 and what appears to be an attractive level of implied volatility for gold. Hope you enjoy!

Your host is back again, providing some thoughts and commentary on the recent period of low volatility in the equity market. With SVB and the debt ceiling uncertainty mostly in the rear-view, markets embraced the calm, experiencing just a single 2% up move and a single 2% down move in the first half of 2023. I break down the causes and consequences of lower volatility. Along the way, you’ll hear some talk on the gamma/theta trade-off, stock bond correlation, the price of upside calls in the S&amp;P 500 and what appears to be an attractive level of implied volatility for gold. Hope you enjoy!

Assessing Recent Dynamics in the World of Vol

As we cue up some new guests for the Alpha Exchange, some reflections from your host on the Black Scholes model and its 50th anniversary. No model is perfect and traders must grapple with real world frictions not entertained by the model. I discuss how option market participants make adjustments and why. Hope you enjoy! 

As we cue up some new guests for the Alpha Exchange, some reflections from your host on the Black Scholes model and its 50th anniversary. No model is perfect and traders must grapple with real world frictions not entertained by the model. I discuss how option market participants make adjustments and why. Hope you enjoy!

Black Scholes Turns 50

Amy Wu Silverman

In a world bubble for the Alpha Exchange podcast, the words vol, carry and convexity would be prominent. And in this episode, featuring Amy Wu Silverman, the Head of Equity Derivatives Strategy at Royal Bank of Canada, we dive into these concepts head on. First, we learn about Amy’s experience in structured rates when, in and around 2007, Fannie and Freddie were the go-to credit to which all kinds of complex instruments were attached.Reflecting on how wrong this ultimately went, she tells us that it often takes the experience of crisis to help us appreciate ways in which market realities can deviate violently from the textbook. We explore some of Amy’s framework, which leans into the value of market prices in helping establish consensus and forming a starting point for investors to map their own distributions of outcomes versus that implied by the market.We then talk about option prices and market risk dynamics today with attention to the huge surge in NVDA and the impact on both option vol surfaces and passive indexation. Amy sees risk in the exceptionally narrow breadth that the surge in NVDA is part of.I hope you enjoy this episode of the Alpha Exchange, my conversation with Amy Wu Silverman.

In a world bubble for the Alpha Exchange podcast, the words vol, carry and convexity would be prominent. And in this episode, featuring Amy Wu Silverman, the Head of Equity Derivatives Strategy at Royal Bank of Canada, we dive into these concepts head on. First, we learn about Amy’s experience in structured rates when, in and around 2007, Fannie and Freddie were the go-to credit to which all kinds of complex instruments were attached. Reflecting on how wrong this ultimately went, she tells us that it often takes the experience of crisis to help us appreciate ways in which market realities can deviate violently from the textbook. We explore some of Amy’s framework, which leans into the value of market prices in helping establish consensus and forming a starting point for investors to map their own distributions of outcomes versus that implied by the market. We then talk about option prices and market risk dynamics today with attention to the huge surge in NVDA and the impact on both option vol surfaces and passive indexation. Amy sees risk in the exceptionally narrow breadth that the surge in NVDA is part of. I hope you enjoy this episode of the Alpha Exchange, my conversation with Amy Wu Silverman.

Amy Wu Silverman, Head of Equity Derivatives Strategy: RBC Capital Markets

Nitin Saksena

There's always a bull market somewhere, and in today's climate of hyper short termism, both volume and commentary are thriving in the land of zero days to expiry options. While the risk characteristics of ODTEs are generally agreed on, the directionality of the flows and resulting positioning remain subjects of vigorous debate. With this in mind, it was a pleasure to welcome Nitin Saksena, the Head of US Equity Derivatives Research at BofA Securities, to the Alpha Exchange.Before embarking on the work that Nitin and team are doing to better understand these ultra short dated options, we survey the landscape of cross-asset vol. Here, Nitin notes that options on certain currency pairs - for example in the Canadian dollar - score on the cheap side on a nominal basis. On a relative basis, rate vol remains substantially high compared to SPX vol as the MOVE index is just 20% off its Covid high while the VIX has declined by 80%.Next, we turn to the risk implications of the substantial flows in daily SPX options. Given the convexity, there are scenarios imagined by some in the industry in which an unwind of wrong-way exposure can accelerate price movements in the index. While respecting the logic of the analysis, Nitin pushes back on the degree to which the flows are one-way, seeing a balance of trades on the long and short side of options. Still, he cautions that because these instruments and the resulting risk exposures are new, we should be carefully monitoring them.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Nitin Saksena.

There's always a bull market somewhere, and in today's climate of hyper short termism, both volume and commentary are thriving in the land of zero days to expiry options. While the risk characteristics of ODTEs are generally agreed on, the directionality of the flows and resulting positioning remain subjects of vigorous debate. With this in mind, it was a pleasure to welcome Nitin Saksena, the Head of US Equity Derivatives Research at BofA Securities, to the Alpha Exchange. Before embarking on the work that Nitin and team are doing to better understand these ultra short dated options, we survey the landscape of cross-asset vol. Here, Nitin notes that options on certain currency pairs - for example in the Canadian dollar - score on the cheap side on a nominal basis. On a relative basis, rate vol remains substantially high compared to SPX vol as the MOVE index is just 20% off its Covid high while the VIX has declined by 80%. Next, we turn to the risk implications of the substantial flows in daily SPX options. Given the convexity, there are scenarios imagined by some in the industry in which an unwind of wrong-way exposure can accelerate price movements in the index. While respecting the logic of the analysis, Nitin pushes back on the degree to which the flows are one-way, seeing a balance of trades on the long and short side of options. Still, he cautions that because these instruments and the resulting risk exposures are new, we should be carefully monitoring them.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Nitin Saksena.

Nitin Saksena, Head of US Equity Derivative Research, BofA Securities

Roni Israelov

The hedge that carries positively but delivers convex returns during a market panic is about as elusive as our lawmakers coming together in bipartisan fashion. As head of option strategies at AQR, Roni Israelov not only confirmed this but saw in the empirical data distinctly unpromising results for hedging strategies that utilized put options.Trained with a PhD in Financial Economics from Carnegie Mellon, Roni has spent his career researching complex topics in markets. We explore his paper “Pathetic Protection” and the challenges that arise from paying option premium to reduce risk. Roni sites the path dependency of options as introducing sometimes significant variability in the effectiveness of a program. He also sites the equity risk premium and the vol risk premium as headwinds for success.Our conversation shifts to another interesting topic, “rebalance timing luck”, work that Roni has done in collaboration with Newfound Research. The finding - that the performance of mechanically rebalanced strategies – can rest heavily on the date of rebalance, is especially the case for option strategies like the giant put spread collar on the SPX that is rolled each quarter.Roni is now the President and CIO of NDVR, a firm providing optimized portfolio solutions to individuals, using academic research, technology and tax efficiency. I hope you enjoy this episode of the Alpha Exchange, my conversation with Roni Israelov.

The hedge that carries positively but delivers convex returns during a market panic is about as elusive as our lawmakers coming together in bipartisan fashion. As head of option strategies at AQR, Roni Israelov not only confirmed this but saw in the empirical data distinctly unpromising results for hedging strategies that utilized put options. Trained with a PhD in Financial Economics from Carnegie Mellon, Roni has spent his career researching complex topics in markets. We explore his paper “Pathetic Protection” and the challenges that arise from paying option premium to reduce risk. Roni sites the path dependency of options as introducing sometimes significant variability in the effectiveness of a program. He also sites the equity risk premium and the vol risk premium as headwinds for success. Our conversation shifts to another interesting topic, “rebalance timing luck”, work that Roni has done in collaboration with Newfound Research. The finding - that the performance of mechanically rebalanced strategies – can rest heavily on the date of rebalance, is especially the case for option strategies like the giant put spread collar on the SPX that is rolled each quarter. Roni is now the President and CIO of NDVR, a firm providing optimized portfolio solutions to individuals, using academic research, technology and tax efficiency. I hope you enjoy this episode of the Alpha Exchange, my conversation with Roni Israelov.

Roni Israelov, President and CIO: NDVR

Dean Curnutt

Welcome to a special edition of the Alpha Exchange, one in which your host and guest are one and the same. Above all, our conversations on this podcast are aimed at helping you think about risk. After all, it was the Spanish philosopher George Santayana who famously said, “those who forget history are doomed to repeat it.”This podcast has three parts. First, an update on a project I’ve been working on, MacroMinds. I created this foundation back in 2019 to raise funding for causes in the NY area focused on student education. Our “business model” is simple – host a once a year, highly differentiated symposium featuring industry leaders who share their insights on the remarkably complex world of investing. On June 7th in NYC, we are doing just that, and I could not be more excited about our incredible agenda.Second, I review a couple of prices in the world of optionality and what they mean in the context of today’s risk dynamics. Specifically, I discuss the fast widening level of CDS written on the US as the reference asset. In the context of the unfolding debt ceiling drama, this instrument is worth keeping an eye on. Next, I review the change in the volatility surface on gold, specifically the emerging bid to upside calls.Lastly, I review some work I did a number of years ago, which I call, simply, “Ten Handy Facts on Vol”. These are characteristics of the behavior of volatility in asset prices and the options that are written on them. I hope you find some value in this exercise and I thank you for listening.

Welcome to a special edition of the Alpha Exchange, one in which your host and guest are one and the same. Above all, our conversations on this podcast are aimed at helping you think about risk. After all, it was the Spanish philosopher George Santayana who famously said, “those who forget history are doomed to repeat it.” This podcast has three parts. First, an update on a project I’ve been working on, MacroMinds. I created this foundation back in 2019 to raise funding for causes in the NY area focused on student education. Our “business model” is simple – host a once a year, highly differentiated symposium featuring industry leaders who share their insights on the remarkably complex world of investing. On June 7th in NYC, we are doing just that, and I could not be more excited about our incredible agenda. Second, I review a couple of prices in the world of optionality and what they mean in the context of today’s risk dynamics. Specifically, I discuss the fast widening level of CDS written on the US as the reference asset. In the context of the unfolding debt ceiling drama, this instrument is worth keeping an eye on. Next, I review the change in the volatility surface on gold, specifically the emerging bid to upside calls. Lastly, I review some work I did a number of years ago, which I call, simply, “Ten Handy Facts on Vol”. These are characteristics of the behavior of volatility in asset prices and the options that are written on them. I hope you find some value in this exercise and I thank you for listening.

Dean Curnutt:  Ten Handy Facts on Vol

The Alpha Exchange is a podcast series launched by Dean Curnutt to explore topics in financial markets, risk management and capital allocation in the alternatives industry. Our in depth discussions with highly established industry professionals seek to uncover the nuanced and complex interactions between economic, monetary, financial, regulatory and geopolitical sources of risk. We aim to learn from the perspective our guests can bring with respect to the history of financial and business cycles, promoting a better understanding among listeners as to how prior periods provide important context to present day dynamics. The “price of risk” is an important topic. Here we engage experts in their assessment of risk premium levels in the context of uncertainty. Is the level of compensation attractive? Because Central Banks have played so important a role in markets post crisis, our discussions sometimes aim to better understand the evolution of monetary policy and the degree to which the real and financial economy will be impacted. An especially important area of focus is on derivative products and how they interact with risk taking and carry dynamics. Our conversations seek to enlighten listeners, for example, as to the factors that promoted the February melt-down of the VIX complex. We do NOT ask our guests for their political opinions. We seek a better understanding of the market impact of regulatory change, election outcomes and events of geopolitical consequence. Our discussions cover markets from a macro perspective with an assessment of risk and opportunity across asset classes. Within equity markets, we may explore the relative attractiveness of sectors but will NOT discuss single stocks.

Dean does a great job interviewing his guests and trying to get actionable ideas.

Great podcast

I’m a deriv PM and LOVE this pod. Nice work !

Great

Alpha Exchange

Ben Melkman

Fascinated by markets at a very young age, Ben Melkman has spent his investing career thinking through the intersection of politics, macroeconomics and the price of options.  After earning a degree from the London School of Economics, Ben hit the FX desk at Morgan Stanley, quickly establishing himself as an invaluable resource for the largest macro hedge funds who sought his counsel on how best to structure trades in light of vol surfaces on offer across asset markets.  After a highly successful run at Brevan Howard, Ben established Light Sky Macro in 2016.  Our conversation is about large vol events.  With respect to the Global Financial Crisis, Ben dove into the complexities of credit derivative markets, concluding that the price of insurance was outlandishly cheap relative to the actual risks and the potential for contagion.  In our discussion, Ben makes highly insightful points around the inherent risks of over-reliance on modeling, the degree to which correlation assumptions can lead to gross underestimation of risk and the vast interconnectedness of the financial system.  Ben’s views on the interaction between politics and markets and the manner in which investors sometimes fail to anticipate regime shifts is fascinating.  He points to the onset of Abenomics in 2013, a massive campaign that aggressively pushed the yen down, Nikkei up and volatility up.  In the period prior to this wholesale shift in policy, option prices were all skewed in the opposite direction.  As we finish this excellent discussion, Ben looks forward to the potential that the combination of more aggressive fiscal policy in conjunction with accommodative monetary policy might cause a re-think of the inflation shortfall that has characterized the post–crisis era, at the very time when inflation is a highly unloved asset class.  Lastly, Ben offers thoughts on the 2020 US election, excited about the potential market action that may arise from the starkly different views offered by the Democrats and Republicans.  Please enjoy this episode of the Alpha Exchange, my conversation with Ben Melkman.

Fascinated by markets at a very young age, Ben Melkman has spent his investing career thinking through the intersection of politics, macroeconomics and the price of options.  After earning a degree from the London School of Economics, Ben hit the FX desk at Morgan Stanley, quickly establishing himself as an invaluable resource for the largest macro hedge funds who sought his counsel on how best to structure trades in light of vol surfaces on offer across asset markets.  After a highly successful run at Brevan Howard, Ben established Light Sky Macro in 2016.  Our conversation is about large vol events.  With respect to the Global Financial Crisis, Ben dove into the complexities of credit derivative markets, concluding that the price of insurance was outlandishly cheap relative to the actual risks and the potential for contagion.  In our discussion, Ben makes highly insightful points around the inherent risks of over-reliance on modeling, the degree to which correlation assumptions can lead to gross underestimation of risk and the vast interconnectedness of the financial system.  Ben’s views on the interaction between politics and markets and the manner in which investors sometimes fail to anticipate regime shifts is fascinating.  He points to the onset of Abenomics in 2013, a massive campaign that aggressively pushed the yen down, Nikkei up and volatility up.  In the period prior to this wholesale shift in policy, option prices were all skewed in the opposite direction.  As we finish this excellent discussion, Ben looks forward to the potential that the combination of more aggressive fiscal policy in conjunction with accommodative monetary policy might cause a re-think of the inflation shortfall that has characterized the post–crisis era, at the very time when inflation is a highly unloved asset class.  Lastly, Ben offers thoughts on the 2020 US election, excited about the potential market action that may arise from the starkly different views offered by the Democrats and Republicans.  Please enjoy this episode of the Alpha Exchange, my conversation with Ben Melkman.

Ben Melkman, Founder and CIO, Light Sky Macro LP

Harley Bassman

There is but one Convexity Maven in the world, a moniker that belongs uniquely to Harley Bassman.  A 35 year career in financial markets has left Harley steeped in all things relating to the price of and characteristics of optionality. Our discussion on this episode of the Alpha Exchange starts with the early days of his career, including a position in Treasury option markets in the early 1980s. Juxtapose that experience - when rates and inflation were sky high - with his more recent market presence when rates and rate vol have rarely been lower - and one can appreciate the breadth of experience Harley has had. Our conversation covers the term structure of rate volatility, the variance risk premium and the way in which option sellers convert potential future capital gains to present day income. Along the way, we discuss the MOVE index, a well-followed metric for bond option volatility that Harley designed, as he explains how the MOVE is tied the slope of the yield curve. Lastly, Harley shares his views on global disinflation and what Central Banks are up against.  Please enjoy this episode of the Alpha Exchange, my discussion with Harley Bassman.

There is but one Convexity Maven in the world, a moniker that belongs uniquely to Harley Bassman. A 35 year career in financial markets has left Harley steeped in all things relating to the price of and characteristics of optionality. Our discussion on this episode of the Alpha Exchange starts with the early days of his career, including a position in Treasury option markets in the early 1980s. Juxtapose that experience - when rates and inflation were sky high - with his more recent market presence when rates and rate vol have rarely been lower - and one can appreciate the breadth of experience Harley has had. Our conversation covers the term structure of rate volatility, the variance risk premium and the way in which option sellers convert potential future capital gains to present day income. Along the way, we discuss the MOVE index, a well-followed metric for bond option volatility that Harley designed, as he explains how the MOVE is tied the slope of the yield curve. Lastly, Harley shares his views on global disinflation and what Central Banks are up against. Please enjoy this episode of the Alpha Exchange, my discussion with Harley Bassman.

Harley Bassman, The Convexity Maven

Harry Markopolos

In a matter of hours in 1999, Harry Markopolos determined that Bernard Madoff’s returns were not real.  Over the course of the next 9 years, Harry and his team assembled a trove of compelling evidence supporting this claim.  He spoke to investors and market participants, studied the web of feeder funds that raised capital and built option pricing models that cast doubt that Madoff could achieve anything close to the results he purported to achieve.  “How do you have over a 3 Sharpe ratio in finance over many years?  You can’t”, Markopolos stated.  Ten years post the collapse of the largest Ponzi scheme ever, I am thankful to have had the opportunity to engage with Harry on the various red flags he spotted, the long arc of his pursuit of Madoff and the degree to which investors remain vulnerable to Ponzi schemes and fraud in the current period.  I hope you enjoy our wide-ranging, candid conversation.

In a matter of hours in 1999, Harry Markopolos determined that Bernard Madoff’s returns were not real. Over the course of the next 9 years, Harry and his team assembled a trove of compelling evidence supporting this claim. He spoke to investors and market participants, studied the web of feeder funds that raised capital and built option pricing models that cast doubt that Madoff could achieve anything close to the results he purported to achieve. “How do you have over a 3 Sharpe ratio in finance over many years? You can’t”, Markopolos stated. Ten years post the collapse of the largest Ponzi scheme ever, I am thankful to have had the opportunity to engage with Harry on the various red flags he spotted, the long arc of his pursuit of Madoff and the degree to which investors remain vulnerable to Ponzi schemes and fraud in the current period. I hope you enjoy our wide-ranging, candid conversation.

Harry Markopolos, Certified Fraud Examiner

Vineer Bhansali

Armed with a Ph.D. in Theoretical Physics, Vineer brings a deep understanding of financial mathematics to developing trading strategies in the derivatives market.  At the same time, he’s learned real lessons over the years about the inherent uncertainties in markets – the surprise Fed tightening in 1994, and the LTCM meltdown in 1998 were formative experiences for Vineer that now guide a risk philosophy that pays careful attention to the tails.  Our in-depth discussion on the extremely low level of market volatility in 2017 uncovers Vineer’s framework for evaluating the risks that can emerge when volatility collapses.

Armed with a Ph.D. in Theoretical Physics, Vineer brings a deep understanding of financial mathematics to developing trading strategies in the derivatives market. At the same time, he’s learned real lessons over the years about the inherent uncertainties in markets – the surprise Fed tightening in 1994, and the LTCM meltdown in 1998 were formative experiences for Vineer that now guide a risk philosophy that pays careful attention to the tails. Our in-depth discussion on the extremely low level of market volatility in 2017 uncovers Vineer’s framework for evaluating the risks that can emerge when volatility collapses.

Vineer Bhansali, Founder and CIO of Long Tail Alpha

David Rogers

In the market for global equity volatility, few investors have the magnitude of experience of David Rogers. Starting at Goldman Sachs in 1982, Dave was evaluating option strategies in the nascent period of the US derivatives market. His experience through the ’87 crash as well as his time in Asia in the early 1990’s, were formative in establishing a risk management philosophy that has proven critical during the many episodes of market turbulence of the past two decades. Our conversation around the Long Term Capital unwind in 1998 and its exposure to short equity volatility, illustrates the importance that Dave puts on patience and position sizing.  Founding JD Capital Management in the aftermath of the tech bubble, Dave has managed complex option exposures from both the long and short side through periods of high and low volatility. Our discussion considers correlation dislocations during the Great Financial Crisis, the impact that structured products can have on volatility surfaces, and the changing regulatory landscape and resulting implications for risk intermediation. We finish by contextualizing the 2017 low vol tail event as Dave shares some of his thoughts on the recent bout of equity vol and what to expect next. Please enjoy my conversation with David Rogers.

In the market for global equity volatility, few investors have the magnitude of experience of David Rogers. Starting at Goldman Sachs in 1982, Dave was evaluating option strategies in the nascent period of the US derivatives market. His experience through the ’87 crash as well as his time in Asia in the early 1990’s, were formative in establishing a risk management philosophy that has proven critical during the many episodes of market turbulence of the past two decades. Our conversation around the Long Term Capital unwind in 1998 and its exposure to short equity volatility, illustrates the importance that Dave puts on patience and position sizing. Founding JD Capital Management in the aftermath of the tech bubble, Dave has managed complex option exposures from both the long and short side through periods of high and low volatility. Our discussion considers correlation dislocations during the Great Financial Crisis, the impact that structured products can have on volatility surfaces, and the changing regulatory landscape and resulting implications for risk intermediation. We finish by contextualizing the 2017 low vol tail event as Dave shares some of his thoughts on the recent bout of equity vol and what to expect next. Please enjoy my conversation with David Rogers.

David Rogers, Founder and CIO of JD Capital Management

Michael Aronstein

Hitting the Street in the bear market days of the late 70’s, Michael Aronstein became quickly engaged in studying the Fed, interest rates and inflation.  His perspective, enabled by managing capital through high and low inflation and volatility regimes, reminds us of the old adage “there are no bad securities, only bad prices”.  A value-oriented investor with a taste for being contrarian, Michael’s research process blends an appreciation for market cycles, a respect for the power of Central Banks and a willingness to listen to what’s on peoples’ minds.  Our conversation on the 1987 crash includes his effective use of put options to ensure the portfolio and the impact of fast-rising US rates on the trade-off between being in risk.  We also cover the formation of Marketfield Asset Management in 2007, where Michael is Chief Investment Officer and how clearly he saw the excess of housing during that period.  In present day, Michael is concerned that the big wealth creation of the new economy is at risk, vulnerable to a slowdown in the money needed to keep the machine running.  Please enjoy this episode of the Alpha Exchange, my discussion with Michael Aronstein.

Hitting the Street in the bear market days of the late 70’s, Michael Aronstein became quickly engaged in studying the Fed, interest rates and inflation. His perspective, enabled by managing capital through high and low inflation and volatility regimes, reminds us of the old adage “there are no bad securities, only bad prices”. A value-oriented investor with a taste for being contrarian, Michael’s research process blends an appreciation for market cycles, a respect for the power of Central Banks and a willingness to listen to what’s on peoples’ minds. Our conversation on the 1987 crash includes his effective use of put options to ensure the portfolio and the impact of fast-rising US rates on the trade-off between being in risk. We also cover the formation of Marketfield Asset Management in 2007, where Michael is Chief Investment Officer and how clearly he saw the excess of housing during that period. In present day, Michael is concerned that the big wealth creation of the new economy is at risk, vulnerable to a slowdown in the money needed to keep the machine running. Please enjoy this episode of the Alpha Exchange, my discussion with Michael Aronstein.

Michael Aronstein, President and CIO of Marketfield Asset Management

Alex Kazan

Utilizing a framework built over two decades, Alex Kazan is keenly attuned to today’s complex world of geopolitical risks and the implications for markets. Argentina’s sovereign default episode two decades ago demonstrated the importance of institutional credibility with respect to managing through an economic and currency crisis.  Years later, the Great Financial Crisis would further inform Alex of the interaction between policymaker goals and what markets would and could bear.  Today, as a Managing Director at Eurasia Group, Alex and his team bring a rigorous combination of economics and an understanding of country risk to assessing the geopolitical chess game. Our excellent conversation covers European populism, Brexit, the US / China standoff on trade and the hollowing out of Centrism in America’s politics. Among the risks that keep Alex up at night is the potential for what he calls an “innovation winter” — a politically underpinned shortfall of the financial and human capital needed to drive the next generation of emerging technologies.

Utilizing a framework built over two decades, Alex Kazan is keenly attuned to today’s complex world of geopolitical risks and the implications for markets. Argentina’s sovereign default episode two decades ago demonstrated the importance of institutional credibility with respect to managing through an economic and currency crisis. Years later, the Great Financial Crisis would further inform Alex of the interaction between policymaker goals and what markets would and could bear. Today, as a Managing Director at Eurasia Group, Alex and his team bring a rigorous combination of economics and an understanding of country risk to assessing the geopolitical chess game. Our excellent conversation covers European populism, Brexit, the US / China standoff on trade and the hollowing out of Centrism in America’s politics. Among the risks that keep Alex up at night is the potential for what he calls an “innovation winter” — a politically underpinned shortfall of the financial and human capital needed to drive the next generation of emerging technologies.

Alex Kazan, Chief Strategy Officer, Eurasia Group

Merrill Lynch

At first blush, market volatility and fragility would appear to be two sides of the same coin. But for Ben Bowler and his global team at BAML, the last 5 years has uniquely seen muted overall daily volatility punctuated by occasional but extreme market outbursts. In Ben’s role as global head of derivative research, he has studied this period - one in which market kurtosis, that pesky 4th moment, has been substantially high. Perhaps owing to the conditioning wrought by the heavy hand of Central Banks, investors have, in Bowler’s rendering, increasingly competed for “dip Alpha”.  Thus, the market’s growing tendency to lurch from calm to calamity as crowded positioning is unwound and then ultimately re-established once the Central Bank asserts its desire to see easier financial conditions.  The result is a remarkable change in the character of market volatility post crisis. In addition to exploring the notion of market fragility, my conversation with Ben considers the volatility risk premium, the value of signals from the landscape of cross-asset vol, and the impact of vol selling on the market’s gamma profile and resulting level of realized index volatility.  We also broadly discuss the impact of risk control funds, the speed with which exposures can be de-risked and the greater incidence of flash-crash type events. Ben's insights are excellent.  I hope you enjoy this discussion as much as I did, my conversation with Ben Bowler on this episode of the Alpha Exchange.

At first blush, market volatility and fragility would appear to be two sides of the same coin. But for Ben Bowler and his global team at BAML, the last 5 years has uniquely seen muted overall daily volatility punctuated by occasional but extreme market outbursts. In Ben’s role as global head of derivative research, he has studied this period - one in which market kurtosis, that pesky 4th moment, has been substantially high. Perhaps owing to the conditioning wrought by the heavy hand of Central Banks, investors have, in Bowler’s rendering, increasingly competed for “dip Alpha”. Thus, the market’s growing tendency to lurch from calm to calamity as crowded positioning is unwound and then ultimately re-established once the Central Bank asserts its desire to see easier financial conditions. The result is a remarkable change in the character of market volatility post crisis. In addition to exploring the notion of market fragility, my conversation with Ben considers the volatility risk premium, the value of signals from the landscape of cross-asset vol, and the impact of vol selling on the market’s gamma profile and resulting level of realized index volatility. We also broadly discuss the impact of risk control funds, the speed with which exposures can be de-risked and the greater incidence of flash-crash type events. Ben's insights are excellent. I hope you enjoy this discussion as much as I did, my conversation with Ben Bowler on this episode of the Alpha Exchange.

Benjamin Bowler, Managing Director and Global Head of Equity Derivatives Research at Bank of America - Merrill Lynch

Michael Green

Managing portfolios over the course of two decades, Mike Green has developed a unique framework for assessing risk and opportunity.  Trained in his early days to perform equity valuation, Mike came on the scene just as the tech bubble was imploding and the massive discrepancy between growth and value was coming undone.  In a great seat to ride the small cap value wave during the post internet bubble, but pre-crisis period, Mike began to appreciate the force of market prices and their impact on behavior, narratives and how they become entangled in feedback loops.  Our conversation is a retrospective on these situations of co-dependency – between profits, psychology and the economy.  In this context we discuss left and right tail events – in valuations, in housing price appreciate and in events of extreme high and low implied and realized volatility.Mike’s insights on market structure bring to life the motivations and market frictions that ultimately give rise to a transaction.  Price, in his rendering, is less about valuation and more about the conditions that give rise to a trade to occur.  The result can be option prices that clear the market considerably higher than what one would think possible and Mike references the near 100% bid to implied correlation in 2012 as an example.Today, Mike is Chief Strategist for Logica Capital Advisers and, as usual, he has a lot on his mind.  We talk a good deal about passive investing, a strategy increasingly embraced as simply a better way.  For Mike, passive indexation is plenty active - there’s a  specific decision being made to buy stocks in proportion to their market caps.  At a time when both the SPX and NDX have become substantially top heavy, investors ought to question the efficacy of such a valuation agnostic approach.Please enjoy this episode of the Alpha Exchange, my conversation with Mike Green. 

Managing portfolios over the course of two decades, Mike Green has developed a unique framework for assessing risk and opportunity.  Trained in his early days to perform equity valuation, Mike came on the scene just as the tech bubble was imploding and the massive discrepancy between growth and value was coming undone.  In a great seat to ride the small cap value wave during the post internet bubble, but pre-crisis period, Mike began to appreciate the force of market prices and their impact on behavior, narratives and how they become entangled in feedback loops.  Our conversation is a retrospective on these situations of co-dependency – between profits, psychology and the economy.  In this context we discuss left and right tail events – in valuations, in housing price appreciate and in events of extreme high and low implied and realized volatility. Mike’s insights on market structure bring to life the motivations and market frictions that ultimately give rise to a transaction.  Price, in his rendering, is less about valuation and more about the conditions that give rise to a trade to occur.  The result can be option prices that clear the market considerably higher than what one would think possible and Mike references the near 100% bid to implied correlation in 2012 as an example. Today, Mike is Chief Strategist for Logica Capital Advisers and, as usual, he has a lot on his mind.  We talk a good deal about passive investing, a strategy increasingly embraced as simply a better way.  For Mike, passive indexation is plenty active - there’s a  specific decision being made to buy stocks in proportion to their market caps.  At a time when both the SPX and NDX have become substantially top heavy, investors ought to question the efficacy of such a valuation agnostic approach. Please enjoy this episode of the Alpha Exchange, my conversation with Mike Green.

Michael Green, Chief Strategist, Logica Capital Advisers

John Succo

When it comes to equity derivatives, few individuals have traded more options than John Succo.  Across a career in markets spanning more than 3 decades, John has managed convexity risk on both the sell-side and buy-side, through high and low vol periods and across single stock and index options.  During the course of our discussion, John shares many rich stories.  He brings to life the early days of career – one in which option pricing inefficiencies were significant across both strike and time.  He describes one of the large, early hedging trades he orchestrated in 1989 – a collar on S&amp;P 500 shortly before the UAL mini-crash in October.  And he has plenty to say about the spectacular blow-up of LTCM, an outcome that surprised him very little.  A theme throughout our conversation is John’s careful attention to sizing positions and his overall objective of remaining long gamma.  While the lean periods for volatility make this challenging, John successfully managed decay through active position management, trading the range in volatility and offsetting some of the bleed from long single stock vol by selling index volatility.  The result was that his hedge fund, Vicis Capital, became looked upon by institutional allocators as a valuable  addition to a portfolio of generally correlated risk-assets.  The orthogonal nature of the return stream from Vicis was of great value for investors in the period leading into and through the financial crisis.  Today, John is a partner at SS Financial, and remains a keen and skeptical observer of markets.  On his mind mostly is debt and the view that it is the sudden stop of unsustainable leverage that usually figures complicit in big vol events.  Please enjoy this episode of the Alpha Exchange, my conversation with John Succo. 

When it comes to equity derivatives, few individuals have traded more options than John Succo.  Across a career in markets spanning more than 3 decades, John has managed convexity risk on both the sell-side and buy-side, through high and low vol periods and across single stock and index options.  During the course of our discussion, John shares many rich stories.  He brings to life the early days of career – one in which option pricing inefficiencies were significant across both strike and time.  He describes one of the large, early hedging trades he orchestrated in 1989 – a collar on S&amp;P 500 shortly before the UAL mini-crash in October.  And he has plenty to say about the spectacular blow-up of LTCM, an outcome that surprised him very little.  A theme throughout our conversation is John’s careful attention to sizing positions and his overall objective of remaining long gamma.  While the lean periods for volatility make this challenging, John successfully managed decay through active position management, trading the range in volatility and offsetting some of the bleed from long single stock vol by selling index volatility.  The result was that his hedge fund, Vicis Capital, became looked upon by institutional allocators as a valuable  addition to a portfolio of generally correlated risk-assets.  The orthogonal nature of the return stream from Vicis was of great value for investors in the period leading into and through the financial crisis.  Today, John is a partner at SS Financial, and remains a keen and skeptical observer of markets.  On his mind mostly is debt and the view that it is the sudden stop of unsustainable leverage that usually figures complicit in big vol events.  Please enjoy this episode of the Alpha Exchange, my conversation with John Succo.

John Succo, Partner, SS Financial

Alberto Gallo

Earning his chops as a macro economist on the sell-side, Alberto Gallo has seen the pendulum of risk swing from extreme fear to euphoria.  During his tenure at Goldman Sachs and then at RBS where he ran the Global Macro Credit Research product, Alberto provided buy-side clients with key insights on seminal volatility events like the Global Financial Crisis and the Eurozone Sovereign debt crisis.  Now, as a Partner at Algebris Investments, Alberto leads the firm’s Macro Strategy effort, a credit-oriented portfolio designed to navigate the ever tricky terrain of present-day markets. Our conversation considers portfolio construction in a world starved of yield, of low cross-asset risk premia, and one in which the potential for more drastic policy response may be on the horizon.  Alberto’s views on today’s regime of monetary policy point to the side effects that result from negative rates, as the banking system suffers, and investors are deprived of income. On the changing nature of volatility in markets, Alberto provides thoughtful insights.  He points to the increasing degree of forward guidance employed by the world’s large Central Banks, a factor that has depressed volatility and led to more days of sun for market participants.  But since there’s no free lunch, days of rain, while fewer, have become more substantial storms.  Alberto details the increased frequency of flash crashes and sharp risk-offs during the post-crisis period, perhaps the result of investors being forced to embrace carry at skinny margins for error.On inflation, Alberto points to a bottoming of CPI in the US even as structural drivers of low inflation, like demographics and technology, are likely to remain going forward.  As the view that monetary policy has lost some of its punch and may be responsible for increasing income inequality, Alberto considers the trend towards lower Central Bank independence and greater cooperation with governments on the fiscal front.  Will this work?  In Alberto’s rendering, it might, but it’s all about how a more unified version of fiscal and monetary policy is deployed. I hope you enjoy this episode of the Alpha Exchange, my discussion with Alberto Gallo.

Earning his chops as a macro economist on the sell-side, Alberto Gallo has seen the pendulum of risk swing from extreme fear to euphoria.  During his tenure at Goldman Sachs and then at RBS where he ran the Global Macro Credit Research product, Alberto provided buy-side clients with key insights on seminal volatility events like the Global Financial Crisis and the Eurozone Sovereign debt crisis.  Now, as a Partner at Algebris Investments, Alberto leads the firm’s Macro Strategy effort, a credit-oriented portfolio designed to navigate the ever tricky terrain of present-day markets. Our conversation considers portfolio construction in a world starved of yield, of low cross-asset risk premia, and one in which the potential for more drastic policy response may be on the horizon.  Alberto’s views on today’s regime of monetary policy point to the side effects that result from negative rates, as the banking system suffers, and investors are deprived of income. On the changing nature of volatility in markets, Alberto provides thoughtful insights.  He points to the increasing degree of forward guidance employed by the world’s large Central Banks, a factor that has depressed volatility and led to more days of sun for market participants.  But since there’s no free lunch, days of rain, while fewer, have become more substantial storms.  Alberto details the increased frequency of flash crashes and sharp risk-offs during the post-crisis period, perhaps the result of investors being forced to embrace carry at skinny margins for error. On inflation, Alberto points to a bottoming of CPI in the US even as structural drivers of low inflation, like demographics and technology, are likely to remain going forward.  As the view that monetary policy has lost some of its punch and may be responsible for increasing income inequality, Alberto considers the trend towards lower Central Bank independence and greater cooperation with governments on the fiscal front.  Will this work?  In Alberto’s rendering, it might, but it’s all about how a more unified version of fiscal and monetary policy is deployed. I hope you enjoy this episode of the Alpha Exchange, my discussion with Alberto Gallo.

Alberto Gallo, Partner and Portfolio Manager, Algebris Investments

Jim Bianco

In the mid 1980's, and recently graduated from Marquette University, a young Jim Bianco scored an accidental meeting for a position with First Boston. Most fortuitously, his resume wound up in the wrong pile, leading him to be mistakenly invited in to interview for a spot supporting a senior analyst. As luck would have it, Jim got the job and so was launched a more than 30 year career in markets. In 1998, amidst the chaos that was LTCM, Jim boldly launch his own firm. And more than two decades later, Bianco Research continues to provide differentiated advice on markets, Central Banks and the economy to its clients.My discussion with Jim focuses on monetary policy, global disinflation and the unholy impact of negative rates on the banking system. Jim’s perspective on the big picture, slow moving yet powerful forces of demographics illustrates how the excess of global savings leads to greater demand for safe fixed income assets. He points as well to the downward pressure on prices due to technological advancement. In this context, he is skeptical that more of the same easy policy from Central Banks is the right medicine to address inflation and growth shortfall.Lastly, I solicit Jim’s views on advancements in research being made possible by Neural Linguistic Processing. Jim and his team have used NLP, for example, to analyze word choices in Fed policy communications to score the degree of focus on growth, inflation, financial stability and other important variables. As data is made more available and at a cheaper price, new techniques like NLP provide exciting opportunities to gain insights on risk. Lastly, we touch on Modern Monetary Theory. While not a fan, Jim acknowledges the momentum of the MMT front, especially as the 2020 election comes into view.

In the mid 1980's, and recently graduated from Marquette University, a young Jim Bianco scored an accidental meeting for a position with First Boston. Most fortuitously, his resume wound up in the wrong pile, leading him to be mistakenly invited in to interview for a spot supporting a senior analyst. As luck would have it, Jim got the job and so was launched a more than 30 year career in markets. In 1998, amidst the chaos that was LTCM, Jim boldly launch his own firm. And more than two decades later, Bianco Research continues to provide differentiated advice on markets, Central Banks and the economy to its clients. My discussion with Jim focuses on monetary policy, global disinflation and the unholy impact of negative rates on the banking system. Jim’s perspective on the big picture, slow moving yet powerful forces of demographics illustrates how the excess of global savings leads to greater demand for safe fixed income assets. He points as well to the downward pressure on prices due to technological advancement. In this context, he is skeptical that more of the same easy policy from Central Banks is the right medicine to address inflation and growth shortfall. Lastly, I solicit Jim’s views on advancements in research being made possible by Neural Linguistic Processing. Jim and his team have used NLP, for example, to analyze word choices in Fed policy communications to score the degree of focus on growth, inflation, financial stability and other important variables. As data is made more available and at a cheaper price, new techniques like NLP provide exciting opportunities to gain insights on risk. Lastly, we touch on Modern Monetary Theory. While not a fan, Jim acknowledges the momentum of the MMT front, especially as the 2020 election comes into view.

Jim Bianco, Founder and President, Bianco Research, LLC.

Ray Iwanowski

There’s not much natural intersection between the study of mathematics and Russian literature.  But for the ever-curious mind of Ray Iwanowski, the Wharton School provided exposure to both.  Ultimately, Ray’s interest in math and physics would lead him to finance where he came upon the Black-Scholes equation and option pricing theory.  After a stint in fixed income research focused on modeling mortgage securities, Ray set upon the Ph.D. program at the University of Chicago in the early 1990s, a vibrant time for advancement in the empirical study of asset pricing.  Utilizing the toolkit he developed, Ray landed at Goldman Sachs Asset Management where he ultimately co-ran the firm’s Global Alpha business.  Today, Ray is co-founder and CIO of SECOR Asset Management, a firm that provides customized portfolio solutions to institutional clients around the world.  My conversation with Ray considers the current state of factor investing in light of the increasingly competitive search for alpha.  In the process, we look back on the 2007 quant crisis, exploring the questions of factor timing, crowding risks, and the correlation of momentum and value strategies.  We also look forward as Ray shares his views on harnessing data and utilizing artificial intelligence and machine learning.  Lastly, we delve into the volatility risk premium, how it has evolved over time, and the reflexive properties of volatility.  I thoroughly enjoyed this conversation, and the perspective Ray offered through his experience as a quant investor.  Now, my discussion with Ray Iwanowski on this episode of the Alpha Exchange.

There’s not much natural intersection between the study of mathematics and Russian literature. But for the ever-curious mind of Ray Iwanowski, the Wharton School provided exposure to both. Ultimately, Ray’s interest in math and physics would lead him to finance where he came upon the Black-Scholes equation and option pricing theory. After a stint in fixed income research focused on modeling mortgage securities, Ray set upon the Ph.D. program at the University of Chicago in the early 1990s, a vibrant time for advancement in the empirical study of asset pricing. Utilizing the toolkit he developed, Ray landed at Goldman Sachs Asset Management where he ultimately co-ran the firm’s Global Alpha business. Today, Ray is co-founder and CIO of SECOR Asset Management, a firm that provides customized portfolio solutions to institutional clients around the world. My conversation with Ray considers the current state of factor investing in light of the increasingly competitive search for alpha. In the process, we look back on the 2007 quant crisis, exploring the questions of factor timing, crowding risks, and the correlation of momentum and value strategies. We also look forward as Ray shares his views on harnessing data and utilizing artificial intelligence and machine learning. Lastly, we delve into the volatility risk premium, how it has evolved over time, and the reflexive properties of volatility. I thoroughly enjoyed this conversation, and the perspective Ray offered through his experience as a quant investor. Now, my discussion with Ray Iwanowski on this episode of the Alpha Exchange.

Ray Iwanowski, Co-Founder and CIO, SECOR Asset Management

In 1999, as a new century was nearly upon us, the Euro was born and the US tech bubble was in full sway, Louis Gave hung a shingle to start an independent research firm with his father, Charles. Twenty years later, Louis remains CEO of Gavekal, a firm that has helped institutional clients distill global market risk throughout different cycles. Our conversation focuses a good deal on China, an economy that Gavekal has carefully studied. Calling China the biggest macro story the world has ever seen, Louis and his team have had a front row seat on the economic transformation in China and the manner in which 400 million citizens have been lifted out of poverty. Through our discussion, we learn more about how China interacts with the global economy and specifically the stabilizing role that the country played during the financial crisis,  as well as during the growth recessions of 2012 and 2016. Our conversation also focuses a good deal on inflation. Amidst the well-worn narrative that inflation shortfall is a global issue, Louis has interesting insights on the social tension that is resulting from higher inflation. He points to riots in Hong Kong, Chile and the Green Jacket uprising in France, all linked to inflation. In the US, Louis is skeptical that inflation is as hard to come by as commonly reported, noting that core CPI is essentially at a 10-year high. As fiscal and monetary policy are both working in the same direction around the world, is the price of inflation too low? Louis sees recency bias at work and a failure of market participants to appreciate the regime shift that may be in motion. He views the price of crude as critical to watch insofar as the outlook for inflation is concerned. We finish our discussion with Louis’ views on portfolio construction, citing caution for the long treasuries / long growth stocks allocation that has rewarded investors during the post-crisis period. Please enjoy this episode of the Alpha Exchange, my conversation with Louis Gave.

In 1999, as a new century was nearly upon us, the Euro was born and the US tech bubble was in full sway, Louis Gave hung a shingle to start an independent research firm with his father, Charles. Twenty years later, Louis remains CEO of Gavekal, a firm that has helped institutional clients distill global market risk throughout different cycles. Our conversation focuses a good deal on China, an economy that Gavekal has carefully studied. Calling China the biggest macro story the world has ever seen, Louis and his team have had a front row seat on the economic transformation in China and the manner in which 400 million citizens have been lifted out of poverty. Through our discussion, we learn more about how China interacts with the global economy and specifically the stabilizing role that the country played during the financial crisis,  as well as during the growth recessions of 2012 and 2016. Our conversation also focuses a good deal on inflation. Amidst the well-worn narrative that inflation shortfall is a global issue, Louis has interesting insights on the social tension that is resulting from higher inflation. He points to riots in Hong Kong, Chile and the Green Jacket uprising in France, all linked to inflation. In the US, Louis is skeptical that inflation is as hard to come by as commonly reported, noting that core CPI is essentially at a 10-year high. As fiscal and monetary policy are both working in the same direction around the world, is the price of inflation too low? Louis sees recency bias at work and a failure of market participants to appreciate the regime shift that may be in motion. He views the price of crude as critical to watch insofar as the outlook for inflation is concerned. We finish our discussion with Louis’ views on portfolio construction, citing caution for the long treasuries / long growth stocks allocation that has rewarded investors during the post-crisis period. Please enjoy this episode of the Alpha Exchange, my conversation with Louis Gave.

Louis-Vincent Gave,  CEO and Founding Partner, Gavekal

Eric Peters

Beginning his career in Chicago trading corn futures in the late 1980’s, Eric Peters moved into the sharp elbowed world of bond futures trading on the CBOT and then went to a bank, prop trading rates and derivatives through the 1990’s.  His perspectives on the exchange rate mechanism crisis in 1992 and the bond market massacre in 1994 provide significant insight on the way in which policy frameworks invite risk taking that can ultimately lead to instability.  Utilizing many of these lessons on risk, Eric founded One River Asset Management, a firm that delivers bespoke solutions to institutional investors, helping them navigate markets in the post-crisis era.  As 2018 comes to a close, Eric sees a long period of adjustment to a higher volatility regime in both the risk asset complex as well as inflation.

Beginning his career in Chicago trading corn futures in the late 1980’s, Eric Peters moved into the sharp elbowed world of bond futures trading on the CBOT and then went to a bank, prop trading rates and derivatives through the 1990’s. His perspectives on the exchange rate mechanism crisis in 1992 and the bond market massacre in 1994 provide significant insight on the way in which policy frameworks invite risk taking that can ultimately lead to instability. Utilizing many of these lessons on risk, Eric founded One River Asset Management, a firm that delivers bespoke solutions to institutional investors, helping them navigate markets in the post-crisis era. As 2018 comes to a close, Eric sees a long period of adjustment to a higher volatility regime in both the risk asset complex as well as inflation.

Eric Peters, One River Asset Management

James Grant

A gunner’s mate in the Navy and a graduate of Indiana University, Jim Grant ventured to the financial desk at the Baltimore Sun in the early 1970’s.  He joined Barron’s in 1975 before launching his firm in 1983.  For more than 3 decades, Grant’s Interest Rate observer has twice monthly landed on the desk top of its readers, providing analysis that is deeply insightful, often skeptical and written in Jim’s uniquely compelling writing style.  My conversation with Jim covers the bad old inflation days of the early 1980’s and the courage of Paul Volcker, the many lessons learned through risk cycles, negative interest rates and his view on the damage done to the price discovery process wrought by the interventionist activities of the modern Central Banker.  Jim even shares his views on the National Weather Service in the course of our excellent discussion.  Gold enthusiast, Fed critic, entrepreneur, accomplished author and father of 4, Jim Grant is a legendary figure in the markets business.  I hope you enjoy our conversation as much as I did on this episode of the Alpha Exchange.

A gunner’s mate in the Navy and a graduate of Indiana University, Jim Grant ventured to the financial desk at the Baltimore Sun in the early 1970’s. He joined Barron’s in 1975 before launching his firm in 1983. For more than 3 decades, Grant’s Interest Rate observer has twice monthly landed on the desk top of its readers, providing analysis that is deeply insightful, often skeptical and written in Jim’s uniquely compelling writing style. My conversation with Jim covers the bad old inflation days of the early 1980’s and the courage of Paul Volcker, the many lessons learned through risk cycles, negative interest rates and his view on the damage done to the price discovery process wrought by the interventionist activities of the modern Central Banker. Jim even shares his views on the National Weather Service in the course of our excellent discussion. Gold enthusiast, Fed critic, entrepreneur, accomplished author and father of 4, Jim Grant is a legendary figure in the markets business. I hope you enjoy our conversation as much as I did on this episode of the Alpha Exchange.

James Grant, Founder of Grant’s Interest Rate Observer

Jon Havice

A nearly 30 year career has given Jon Havice exposure to just about every strategy across the spectrum of asset markets. A freshly minted Wharton graduate with a major in engineering, Jon came upon O’Connor Associates in the early 1990’s where he cut his teeth trading listed currency option markets. Pre-euro, Jon would experience seminal FX vol events like the ERM unwind,Tequila crisis and Asian contagion in short order, gaining an appreciation for the impact of positioning on currency vol surfaces.As his career progressed, Jon would manage the gamut of arbitrage strategies, focusing on exotic options, convertible bonds, capital structure and muni bonds and dispersion. Our discussion brings to life the lessons to be had from trading through market crisis periods, including the importance of counterparty risk and the degree to which asset prices can stray from fundamental value. We also dive into the vol risk premium, exploring its attributes and how it has evolved over the years in light of the heavy hand of Central Banks. In a world of exceptionally low rates, Jon worries about the glut of yield-chasing capital in private credit and the potential that valuation distortions have resulted.Today, Jon is CIO of DGV Solutions, a firm he founded in 2014 to offer customized investment management products in a transparent and cost efficient manner. His firm deploys its expertise with a purpose, partnering with clients with inspiring missions that Jon and his team feel very connected to. Please enjoy this episode of the Alpha Exchange, my conversation with Jon Havice.

A nearly 30 year career has given Jon Havice exposure to just about every strategy across the spectrum of asset markets. A freshly minted Wharton graduate with a major in engineering, Jon came upon O’Connor Associates in the early 1990’s where he cut his teeth trading listed currency option markets. Pre-euro, Jon would experience seminal FX vol events like the ERM unwind,Tequila crisis and Asian contagion in short order, gaining an appreciation for the impact of positioning on currency vol surfaces. As his career progressed, Jon would manage the gamut of arbitrage strategies, focusing on exotic options, convertible bonds, capital structure and muni bonds and dispersion. Our discussion brings to life the lessons to be had from trading through market crisis periods, including the importance of counterparty risk and the degree to which asset prices can stray from fundamental value. We also dive into the vol risk premium, exploring its attributes and how it has evolved over the years in light of the heavy hand of Central Banks. In a world of exceptionally low rates, Jon worries about the glut of yield-chasing capital in private credit and the potential that valuation distortions have resulted. Today, Jon is CIO of DGV Solutions, a firm he founded in 2014 to offer customized investment management products in a transparent and cost efficient manner. His firm deploys its expertise with a purpose, partnering with clients with inspiring missions that Jon and his team feel very connected to. Please enjoy this episode of the Alpha Exchange, my conversation with Jon Havice.

Jon Havice, Founder and CIO, DGV Solutions

Scott Ladner

In 1998, Scott Ladner hit the derivatives scene at First Union, just as LTCM was imploding and equity volatility was rocketing higher.  No sooner would the Fed help contain that risk episode, then the tech bubble would be set in motion.  An intense period of “stocks up, vol up”  during which valuations expanded to unheard of levels, followed by an equally intense, “stocks down, vol up” characterized the period of 1999 through 2001 and provided hands on, sometimes painful experiences for Scott in managing convexity risk.  Short airline volatility during the September 11th terrorist attack, Scott quickly came to appreciate the potential for significant gap risk and discontinuity in markets, a reality not contemplated in the textbook version of Black Scholes.My conversation with Scott considers insights gathered over a career managing volatility exposure across asset classes and how he came to his role as CIO of Horizon Investments.  Scott shares his views on how volatility can come and go, how many factors can come to impact the price of options and how important it is to have a number of little bets on versus being overly concentrated in a singular exposure.  He points to the value, but also the dangers of option models, learning along the way not to take the output too seriously and to constantly re-examine the assumptions being made.  Today, Scott’s dashboard consists of credit, liquidity and risk metrics with the goal of identifying incongruities that help him focus his research to better understand market dynamics.  In this context, we discuss the early and late year vol events of 2018.Lastly, we discuss Horizon’s efforts on behalf of its clients to manage wealth and reach retirement goals within the constraints of the low growth and low interest rate environment.  His team is seeking to build risk management techniques that work specifically in today’s unique economic and financial climate.  Noting that there is now “an ETF for everything”, he sees the last 10 years as the age of product.  The next 10, in contrast, he views as the age of planning, where the focus should be on how to best utilize these new products to maximize the wealth and overall experience of retirement for individuals.  Please enjoy this episode of the Alpha Exchange, my conversation with Scott Ladner.

In 1998, Scott Ladner hit the derivatives scene at First Union, just as LTCM was imploding and equity volatility was rocketing higher.  No sooner would the Fed help contain that risk episode, then the tech bubble would be set in motion.  An intense period of “stocks up, vol up”  during which valuations expanded to unheard of levels, followed by an equally intense, “stocks down, vol up” characterized the period of 1999 through 2001 and provided hands on, sometimes painful experiences for Scott in managing convexity risk.  Short airline volatility during the September 11th terrorist attack, Scott quickly came to appreciate the potential for significant gap risk and discontinuity in markets, a reality not contemplated in the textbook version of Black Scholes. My conversation with Scott considers insights gathered over a career managing volatility exposure across asset classes and how he came to his role as CIO of Horizon Investments.  Scott shares his views on how volatility can come and go, how many factors can come to impact the price of options and how important it is to have a number of little bets on versus being overly concentrated in a singular exposure.  He points to the value, but also the dangers of option models, learning along the way not to take the output too seriously and to constantly re-examine the assumptions being made.  Today, Scott’s dashboard consists of credit, liquidity and risk metrics with the goal of identifying incongruities that help him focus his research to better understand market dynamics.  In this context, we discuss the early and late year vol events of 2018. Lastly, we discuss Horizon’s efforts on behalf of its clients to manage wealth and reach retirement goals within the constraints of the low growth and low interest rate environment.  His team is seeking to build risk management techniques that work specifically in today’s unique economic and financial climate.  Noting that there is now “an ETF for everything”, he sees the last 10 years as the age of product.  The next 10, in contrast, he views as the age of planning, where the focus should be on how to best utilize these new products to maximize the wealth and overall experience of retirement for individuals.  Please enjoy this episode of the Alpha Exchange, my conversation with Scott Ladner.

Scott Ladner, Chief Investment Officer, Horizon Investments

Benn Eifert

Welcome to the first in a special series of the Alpha Exchange in which the 2020 economic and financial crisis is the specific focus.  Amidst this protracted dislocation in markets, I am pleased to have Benn Eifert, the founder and CIO of QVR Advisors, share his views on the factors at work within the equity derivatives market and the important drivers of option prices.  Benn’s insights on positioning in both vanilla and complex OTC products, his knowledge of the landscape of risk transfer trades that experienced substantial growth in recent years and his expertise in the surface of equity index volatility are all highly relevant in an environment of explosive daily moves in both the S&amp;P 500 and implied volatility itself.  Thank you for listening.

Welcome to the first in a special series of the Alpha Exchange in which the 2020 economic and financial crisis is the specific focus.  Amidst this protracted dislocation in markets, I am pleased to have Benn Eifert, the founder and CIO of QVR Advisors, share his views on the factors at work within the equity derivatives market and the important drivers of option prices.  Benn’s insights on positioning in both vanilla and complex OTC products, his knowledge of the landscape of risk transfer trades that experienced substantial growth in recent years and his expertise in the surface of equity index volatility are all highly relevant in an environment of explosive daily moves in both the S&amp;P 500 and implied volatility itself.  Thank you for listening.

Benn Eifert, Founder and CIO, QVR Advisors

Nancy Davis

Nancy Davis, founder of Quadratic Capital, has spent her entire career trading options of all shapes and sizes and across all of the asset classes. She’s traded them listed, OTC, vanilla and complex in rates, FX, commodities, credit and equities. Over the course of nearly 20 years, Nancy has developed important perspective on risk cycles, trading through the dotcom era, the GFC, the 2011 sovereign crisis, the 2016 Brexit referendum and, more recently, the VIX unwind event of early 2018. Over these risk episodes and the quiet periods in between them, Nancy has developed a philosophy on utilizing optionality as a core vehicle to implement long or short directional exposure. Our conversation explores the fundamental question – “are options a good deal or not?” in light of the demonstrated premium of implied to realized volatility over time set against the numerous options blow-ups that have occurred in markets. As a prominent woman in the derivatives space, I also seek Nancy’s views on the state of female representation in the finance industry and work she’s doing to advance the cause of having more women on the investing side of the business. Lastly, we discuss IVOL, the Quadratic Interest Rate Volatility and Inflation Hedge ETF, an innovative product that Nancy recently launched. In a world in which options on the yield curve cost very little and next to no one sees the potential for appreciably higher inflation, Nancy sees IVOL as a valuable portfolio diversifier. Please enjoy this episode of the Alpha Exchange, my discussion with Nancy Davis. 

Nancy Davis, founder of Quadratic Capital, has spent her entire career trading options of all shapes and sizes and across all of the asset classes. She’s traded them listed, OTC, vanilla and complex in rates, FX, commodities, credit and equities. Over the course of nearly 20 years, Nancy has developed important perspective on risk cycles, trading through the dotcom era, the GFC, the 2011 sovereign crisis, the 2016 Brexit referendum and, more recently, the VIX unwind event of early 2018. Over these risk episodes and the quiet periods in between them, Nancy has developed a philosophy on utilizing optionality as a core vehicle to implement long or short directional exposure. Our conversation explores the fundamental question – “are options a good deal or not?” in light of the demonstrated premium of implied to realized volatility over time set against the numerous options blow-ups that have occurred in markets. As a prominent woman in the derivatives space, I also seek Nancy’s views on the state of female representation in the finance industry and work she’s doing to advance the cause of having more women on the investing side of the business. Lastly, we discuss IVOL, the Quadratic Interest Rate Volatility and Inflation Hedge ETF, an innovative product that Nancy recently launched. In a world in which options on the yield curve cost very little and next to no one sees the potential for appreciably higher inflation, Nancy sees IVOL as a valuable portfolio diversifier. Please enjoy this episode of the Alpha Exchange, my discussion with Nancy Davis.

Nancy Davis, Founder, Quadratic Capital

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