According to Goldman Sachs, the latest jump in the Vix (a measure of stockmarket volatility) took it eight standard deviations from its average. If conventional models are correct, such an event should not have happened in the history of the known universe. Then again, the move in energy prices that caused the collapse last year of Amaranth, the hedge fund, was a nine standard-deviation event.
For clarity sake, the movement in the Vix index (spoken about above) during the last three months is as below:
Hmmm…… Two seemingly impossible events within a span of three months. Tells us something about our modelling skills.
No wonder, the Sage of Omaha continues to rule the world of investments.
