At Europe EQD 2026 in Barcelona, Walter Cegarra, our Head of Institutional Solutions, Financial Products, joined Artur Sepp, Global Head of Investment Services Quant Group at LGT Private Banking and Risk Magazine’s Quant of the Year 2024, for a fireside chat exploring how volatility behaves across asset classes, and what two decades in quantitative finance reveal about risk, model design, and portfolio construction.
The discussion spanned across equities, crypto and rates, highlighting how lessons learnt in one market increasingly apply to others, before discussing some most recent developments in cross asset portfolio construction.
When Models Fail, Markets Teach
Walter and Artur began by reflecting on the post-Global Financial Crisis environment, where equity and credit markets exposed a critical flaw in many pre-2008 models: they underestimated extreme outcomes.
The key lesson was not theoretical elegance, but empirical consistency. Models must reflect how volatility actually behaves in stressed markets, not how it is assumed to behave. This shift in thinking ultimately shaped a more robust stochastic volatility framework, the log-normal beta stochastic volatility model, developed by Artur with Piotr Karasinski, and improved structured product design.
Crypto as a New Volatility Paradigm
Around 2020–2021, crypto forced another rethink.
Unlike equities, crypto typically displays positive correlation between price moves and volatility, with demand for options rising during rallies rather than sell-offs. With little academic research available, traditional financial models had to be adapted to a market driven by participation, positioning, and network effects.
The conclusion was clear: crypto volatility is less about pure price risk and more about liquidity, structure, and interconnected behaviour. As a result, institutional investors have typically approached crypto through market-neutral, carry, yield, and relative-value strategies rather than outright directional exposure, a trend Marex Financial Products continues to see today.
When Rates Started Behaving Like Crypto
The inflation shock of 2022–2023 marked another regime shift.
As rates rose sharply, rate volatility increased alongside them, breaking assumptions embedded in many traditional interest rate models. Mathematical conditions that once held no longer applied, precisely when demand for protection surged.
This episode mirrored dynamics previously observed in crypto, reinforcing a central theme of the discussion: volatility regimes can migrate across asset classes, and frameworks developed for one market may become critical in another.
From Asset Allocation to Implementation
The conversation also challenged the idea that asset allocation alone drives outcomes.
While strategic allocation defines risk tolerance, alpha increasingly comes from implementation, including instrument selection, structuring, and robust risk modelling. This is especially relevant as portfolios incorporate more alternatives, private assets, and derivatives.
Walter and Artur discussed the importance of accounting for smoothing, hidden leverage, and liquidity mismatches, particularly in private markets, where reported volatility often understates true risk. This thinking underpins Artur’s ROSAA framework for robust portfolio optimization, recently published in the Journal of Portfolio Management.
The discussion also touched another research area covered by Artur highlighting the benefits of including digital assets in an institutional portfolio.
Looking Ahead: Regimes, Data and Adaptation
Looking forward, the discussion turned to regime detection and alternative data.
Rather than relying solely on historical time series, future portfolio frameworks are likely to incorporate flow data, positioning, macro signals, and cross-asset information. The objective is not perfect foresight, but faster adaptation as markets transition between regimes.
A Cross-Asset View of Volatility
What made this fireside chat at Europe EQD 2026 distinctive was its cross-asset perspective. From equities to crypto to rates, the discussion showed how volatility, behaviour, and risk are increasingly interconnected.
For institutional investors, the message was clear: in markets where regimes shift quickly and assumptions break down, robust models, empirical discipline, and thoughtful implementation matter more than ever.
Interested in exploring how Marex Financial Products supports institutional clients across volatility, structuring and risk management?
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