Alpha Exchange

It was a pleasure to host an Alpha Exchange discussion with Franklin Parlamis, the Founder and CIO of Aequim Alternative Investments.

Franklin brings a distinctive perspective shaped by two decades in capital structure and convertible bond arbitrage. His career spans the Russian debt restructuring of 1998—where he witnessed firsthand how broken correlations can unwind hedges—through the convertible market collapse of 2008, when leverage amplified systemic stress and "the machine broke."

Our conversation explores how convertibles sit at the nexus of multiple asset classes: rates, rate volatility, credit, credit volatility, equities, and stock lending. When any of these inputs malfunctions, arbitrage breaks down. Franklin's experience navigating the GFC reinforced a critical lesson: sometimes the bravest move is admitting losses and right-sizing risk, a discipline that positioned his team to prosper during 2009's rebound.

Franklin articulates a central insight: markets are generally good at identifying undervalued companies but less efficient at allocating value across the capital structure. The key tension he navigates is credit spreads versus equity volatility. When spreads are wide and implied vol is low, convertibles offer clean arbitrage: the rich credit premium can fund put protection at cheap vol levels. Today's environment inverts this relationship: spreads remain tight while vol sits elevated, forcing arbitrageurs to continuously realize vega rather than harvest it passively.

We close by examining whether elevated implied volatilities represent a permanent regime shift or cyclical peak. Rather than making a binary call, Franklin describes the process he uses to identify asymmetric opportunities across plausible scenarios.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Franklin Parlamis.

It was a pleasure to welcome David Silber, Head of Institutional Equity Derivatives at Citadel Securities, to the Alpha Exchange to discuss the evolution of listed options markets, institutional liquidity, and the technology reshaping modern derivatives trading.

We begin with Dave’s early career on the floor of the Chicago Board Options Exchange during the transition to multi-listed options, where market making, open outcry, and physical proximity to order flow defined liquidity provision. He reflects on the evolution of the options market from paper tickets and fractional pricing to today's electronic ecosystem, highlighting how advances in technology have fundamentally changed both price discovery and risk management.

We then turn to the creation of Citadel Securities’ institutional derivatives business. Dave explains how his experience across multiple firms led him to identify opportunities to reduce friction in institutional options execution by combining technology, quantitative research, and broad access to liquidity. He describes how automation, electronic execution, and competitive pricing have transformed the institutional trading experience while expanding access to listed options.

The discussion also examines recent growth in listed options markets, including increasing contract volumes, shorter-dated expirations, and the expanding use of listed options by institutional investors for hedging, leverage, and portfolio management. Dave shares his perspective on liquidity provision, risk management, and the importance of maintaining resilient markets during periods of elevated activity.

We conclude with a discussion on recruiting talent, developing strategy and data products for clients, and aligning sales, trading, and technology teams around creating a more efficient experience for institutional investors.

I hope you enjoy this episode of the Alpha Exchange, my conversation with David Silber.

What causes significant risk-off events? Can they be anticipated to any degree? Understanding the how and why of these episodes is critical for investors seeking to avoid drawdowns.

In this short podcast, I share how I think about episodes of risk-off, with particular attention to the interaction between stock and bond prices — before, during, and after market vol events.

I outline three type of risk-off: the classic, the taper, and the liquidation, and provide examples of each. I also propose a fourth, in which the US Treasury market is itself the source of global instability. 

I hope you find this discussion useful and I wish you an excellent July 4th holiday. 

 

Editing and post-production work for this episode was provided by The Podcast Consultant (⁠https://thepodcastconsultant.com⁠)

Aaron Brown is a Wall Street quant, risk manager, and trader. He’s also a professor and the author of the recent book Wrong Number—on probability, reasoning, and the role of skepticism in markets and beyond.

 

We begin with Aaron’s unconventional path into finance, from identifying betting opportunities in horse racing and playing professional poker to studying under pioneers including Fischer Black before spending decades on Wall Street.

 

The conversation explores how concepts from poker—including bankroll management, Kelly sizing, and separating risk management from individual decisions—translate into portfolio construction and investing.

 

We then turn to Aaron’s latest book, Wrong Number, which examines the misuse and misinterpretation of statistics across a range of public policy and scientific topics. He discusses common errors surrounding p-values, data quality, and the incentives that shape published research, emphasizing the importance of skepticism and careful interpretation of statistical claims.

 

The discussion shifts back to financial markets, including factor investing and the evolution of systematic strategies. Aaron reflects on the distinction between economically meaningful factors and statistical overfitting, while also discussing how artificial intelligence may improve risk management and market surveillance.

 

We conclude by exploring prediction markets, the wisdom of crowds, and price formation. Aaron shares his perspective on probability, market games, and the role prediction markets can play in helping participants better understand both market expectations and their own decision-making.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Aaron Brown.

David Dredge, Founder and CIO of Convex Strategies, has spent his career in derivatives markets, on the long side of optionality and seeking value in convexity. It was great to learn more about the role he plays in fortifying client portfolios with insurance and to have him reflect on how periods of market stress expose limitations in traditional risk methodologies.

Our conversation focuses on volatility supply and the structural forces that generate it. Here, David discusses the growth of structured products across equities, rates, and FX markets, and explains how regulatory frameworks, accounting treatment, and yield-seeking behavior contribute to the persistent creation of short-volatility exposures throughout the financial system.

David describes Convex Strategies as a value investor in volatility, focused on sourcing efficient insurance rather than trading volatility for profit. He explains how the firm seeks to identify areas where volatility is supplied at attractive prices and where convexity can provide meaningful diversification during periods of stress.

We also explore the role of leverage, correlation assumptions, and risk management frameworks in amplifying market dislocations. David discusses examples ranging from LTCM and the Global Financial Crisis to the rate volatility repricing of 2022.

The conversation concludes with perspectives on Japan, global bond markets, and the importance of pricing when constructing hedges. Throughout, David emphasizes that the effectiveness of any hedge depends not simply on the instrument itself, but on the value at which that protection is acquired.

I hope you enjoy this episode of the Alpha Exchange, my conversation with David Dredge.