NOBODY DISPUTES HOW challenging 2008 was for all equity market participants other than outright short-sellers. As Deutsche Bank analysts reflected in the firm’s 2009 volatility outlook: "2008 proved to be a year to which Murphy’s Law applied as (almost) everything that could go wrong did. In 12 months, equity markets across the globe experienced levels of volatility which rapidly ran out of comparisons. Market liquidity dried up amid hedge fund redemptions and extreme volatility brought new challenges for even passive investors."
The German bank should know. In February, full-year equity sales and trading revenues were negative by €630 million, compared with gains of €4.6 billion in 2007. That stunning reversal was driven chiefly by the losses generated by Deutsche’s equity derivatives desk in the fourth quarter of 2008. Those reached €1.7 billion, "from managing structural risks, particularly around correlation, volatility and dividend risk related to single...
