Options for Volatile Markets: Managing Volatility and Protecting Against Catastrophic Risk, Second Edition

INTRODUCTION

The “New Normal” in Equity Investing

Anyone who has invested in stocks over the last several decades would be naïve to ignore the fact that the risks of owning equity investments have increased during that time. A simple look at the time-honored measure of market volatility—a standard statistical measure of the ups and downs in stock prices over time—illustrates that over the last half-century, it has been steadily rising, with the most recent 25 years looking considerably different than the prior 25. And, as we are all too well aware, the volatility experienced in 2008 exceeded that of any previous year on record. Figure I.1 illustrates historical 100-day volatility on the S&P 500 Index daily since the 1950s.

To accommodate the ...