How do I love thee? Let me count the ways.
I love thee to the depth and breadth and height
My soul can reach, when feeling out of sight. . .
I love thee with the passion put to use
In my old griefs, and with my childhood’s faith.
When I read these words, written over a century and a half ago, I marvel at how presciently Elizabeth Barrett Browning anticipated the modern enthusiasm for financial market volatility. For some, vol is a fantastic lottery, providing an adrenaline rush most Powerball players can only dream of. For others, it’s proof of man’s inherent wickedness and/or the inherent injustice of life.
Even scientists are enthralled. Economists use the allegedly excess volatility of market prices relative to fundamentals to demonstrate the deep-seated irrationality of rich investors. Fellow academics, reassured that their shortcomings in wealth vouch for their smarts, heap accolades on them. As for derivatives modelers, unevenly excess vol is a goldmine: the greatest boost to the curvefitting industry since Ptolemaic epicycles.
Unfortunately, most of the pious pronouncements about financial market volatility are nothing more than voodoo. Disciples turn into zombies, endlessly muttering “irrational exuberance”, “unbounded moments”, “GARCH behavior”, “fractional Brownian motion”, and other mantras of despair. Intimidated, few non-disciples dare to even look for simpler, less superstitious explanations of excess vol.
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