Odd Lots JPMorgan's Josh Younger on Rate Derivatives and Volatility Ahead of the Election
Oct 26, 2020
Josh Younger, the Head of U.S. interest rate derivative strategy at JPMorgan Chase, shares his insights on market volatility as the election approaches. He discusses how traders are preparing for potential spikes and the implications of the VIX indicator amid uncertain electoral outcomes. The conversation dives into hedging strategies, the psychology behind investor behavior, and historical patterns influencing current options pricing. Plus, Younger explores the relationship between political developments and market reactions, emphasizing the challenges of navigating economic uncertainties.
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Measuring Election Volatility
- Market volatility around elections is measured by comparing options expiring before and after the election.
- This reveals a risk premium tied to the event, indicating anticipated market fluctuations.
Asset Class Volatility Differences
- Interest rates and currencies show higher volatility pricing due to potential policy shifts after elections.
- The impact on interest rates is counterintuitive, given the similar fiscal outlooks of both candidates.
2016 Election Impact on Rates
- In 2016, interest rates moved violently post-election, unlike stocks which mostly continued rising.
- A machine learning model at JPMorgan, unaware of the election, correctly predicted a rising rate environment pre-election.