The Evolution Of European Equity Risk

By Bill Luby: Since its launch in August 2008, the CBOE EuroCurrency Volatility Index (ticker EVZ, sometimes known simply as the "euro VIX"), which is based on the FXE ETF, has toiled in relative obscurity compared to some of the more famous volatility indices.

By Bill Luby: Anyone who has been active in the financial markets during the past five years knows that there are many types of risk, many ways to think about and measure risk, and invariably some risks lurking around the next corner that many of us have never bothered to contemplate.

CTA Trading Desk Morning Report[7:00am ET] Good morning. Shinzo Abe is an important person, in fact one of the most important people in the world today and few around the world know his name. Shinzo Abe is the recently elected prime minister of Japan and he is important because his government has thrown the global currency market into chaos. Unsettling to many, the authorities in Japan intend to keep the pressure on; hence a global currency war is inevitable.

By Bill Luby: One of the predictions I made for 2011 was that the trend toward what I have labeled “atomic volatility” (a lessening of the scope of the underlying for options contracts and/or the duration of those contracts) would accelerate. Back in March 2011, the CBOE helped to usher in the atomic volatility era when they rolled out volatility indices using the VIX methodology for six sector and geography ETFs:

Outside of wartime, serious governments don't default. And if they do, it's a seismic market event. That's why the European authorities will do everything to prevent Greece from going down that path. But there are plenty of ways to lower a country's debt burden which stop short of a formal default. The question is whether the more benign, voluntary approaches to restructuring can be done quickly enough, or deliver enough relief to the hard-pressed Greeks.

At long last the ISDA has agreed that Greece in in default, and that default constitutes a "credit event". Bloomberg reports Greece Deal Triggers $3B in Default Swaps. Greece’s use of collective action clauses forcing investors to take losses under the nation’s debt restructuring will trigger payouts on $3 billion of default insurance, the International Swaps & Derivatives Association said.

European finance ministers and politicians have come to the conclusion that a deal, even one involving a credit event, is better than no deal at all. Thus it is increasingly likely the Greek Debt Wrangle will trigger credit default swaps. Opposition to payouts on Greek credit-default swaps from European Union policy makers is softening as disputes over a voluntary debt exchange threaten to push the nation into default.

How likely is it that a country will default on part or all of its nationa