Oliver Brennan, FX Volatility Strategist, BNP Paribas

Even if very short-lived, market vol episodes as protracted as that of Monday August 5th, demand our attention. In seeking some understanding of the why of successive 10% NKY moves and a 65 pre-open handle on the VIX, it was a pleasure to welcome Oliver Brennan to the Alpha Exchange. An FX vol strategist at BNP, Oliver brings theoretical training in physics to the related but also very different world of option pricing. In setting up the discussion, we first explore a series of past FX vol episodes including the Euro-Swiss break and CNH re-peg in 2015 and Brexit from the following year.  At the heart of these events lie economic imbalances and Central Banks that get tested by the market to hold the line. We shift to a discussion of the setup going into early August in the Japanese Yen. Always an investment currency because of its balance of payment profile, Oliver argues that carry trades had gotten especially extended as dollar/yen trended so consistently higher. Market participants were long calls and long carry, and the dealing community was especially exposed to an increase in both realized and implied vol. He notes the absence of corporate supply as well of Yen vol in this recent event, something that exacerbated the repricing. With the tails especially under-owned, the more than 6% sell-off in dollar/yen caught the market well off-sides. I hope you enjoy this episode of the Alpha Exchange, my conversation with Oliver Brennan.

Om Podcasten

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.