07 July 2016
Volatility – still waters run deep
In the wake of the Brexit vote, and despite an 8.5% drop in the Euro Stoxx 50 on June 24th, implied volatility didn’t spike in Europe.
On the below chart, the red dot represents the 1-day implied volatility shift of a 3M option between the 23rd and the 24th June. Implied volatility decreases by 0.34% when the markets lose 8.5%. Compared to previous market movements (the blue dots), the actual impact of the Brexit on volatility is a clear outlier.
While headline volatility like the VSTOXX moved up (+3.4 points to 35.42), it nonetheless closed below its level of June 22nd at 36. Intuitively, VSTOXX should move up when market moves down. While both usually move in sync, it was not the case after the Brexit.