The shadow convexity risk in the machine (and the VIX)

Every so often Chris Cole, of Artemis Capital, perhaps one of the deepest and most provocative thinkers in the volatility trading space, graces us with a rare glimpse into his imaginarium. His latest publicly available research report offers this: The Prisoner’s Dilemma is the most important paradigm for understanding shadow risk in modern financial markets at the pinnacle of a multi-generational debt cycle unparalleled in the history of finance. In their masterwork tapestry entitled “Allegory of the Prisoner’s Dilemma” the artists Diaz Hope and Roth visually depict a great tower of civilisation that rests upon a bedrock of human cooperation and competition across history. The artists force us to confront the fact that after 10,000 years of human civilisation we are now at a cross-roads. Today we have the highest…


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