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Market Maker Positioning and the Recent Market Meltdown

Speaker: Hari P. Krishnan 

18:00 - 20:30 BST / 13:00 - 15:30 EDT

CQF Institute is proud to bring you a free online talk with Hari P. Krishnan on Market Maker Positioning and the Recent Market Meltdown.

Abstract 

While COVID-19 was an obvious catalyst for the equity market meltdown in February and March 2020, internal market factors increased the violence of the move. In this talk, we will restrict ourselves to the role options market makers (or "dealers") played in the crisis. We will show how Avellaneda and Lipkin's original price impact model for pinned stocks can be applied to situations where market makers are short a large number of index puts. Our simulation results generate fat tails directly from dealer hedging after an initial price move. We will also see how the SqueezeMetrics GEX indicator signalled internal market risk in advance of the initial February sell off. The GEX should provide an important new positioning indicator for investors.

Speaker Bio

Hari P. Krishnan is a portfolio manager at Doherty Advisors in New York. He has previously worked as a macro fund manager at Crossborder Capital in London and an asset allocation specialist at Morgan Stanley in Chicago and London. Hari is the author of a book on regime-specific hedging called The Second Leg Down, published by Wiley in 2017. He is currently working on Market Tremors, which identifies pre-conditions for a market crisis during quiet regimes. Since 2019, Hari has made several appearances on Real Vision, covering dangers in exchange-traded products and hedging in volatile markets. He holds a PhD in applied math from Brown University and was a research scientist at the Columbia Earth Institute before moving into finance.