No abstract

Could the COVID‐19 related market crash and subsequent rebound be explained as a rational response to evolving conditions? Our results using multiple forward‐looking measures of uncertainty implied from stock option prices suggest so. First, we find a gradual build‐up of volatility during the month preceding the spike at the start of the pandemic. Second, while tail risk declined after government interventions, the level of uncertainty remained elevated for stocks across industries. Third, the dynamics of decline in tail risk in stocks was industry‐dependent, suggesting that the market performed a fine‐grained analysis of each stock's uncertainty through the pandemic.

No abstract

No abstract

The case is about a decision problem facing James on whether or not to invest in a structured product called the “CMS Steepener” issued by a large US investment bank. The payoff from the product is linked to two constant maturity swap (CMS) rates, and the investor profits if the difference between the two CMS rates increases, or alternatively if the CMS curve steepens. The case describes the risks that investing in such a product poses, and presents relevant data on the CMS rates, term structure and recent financial history of the issuer to help resolve James's decision problem.