SPX Draw Down Study

February 3, 2014
The Buzz: Equity and vol market

response to EM pressure
Options Research
Global equity performance on prior EM pullbacks

EM pressure unlikely to spill over to DM
Our Global Markets team highlighted two main
channels through which EM weakness can affect
DMs:
Historical perspective: US and global

equity performance on EM pullbacks
The trade channel: gross exports to EM are a
We looked at S&P 500, VIX and global equity

performance across 19 EM equity pullbacks of 5%
or greater over the past decade.
little less than 5% of GDP for the US.
The median episode saw a 12% fall in EM

equities and a 6% fall in the S&P 500.
Across global equity indices, Russia, China

and Brazil have tended to be hit the hardest.
In the current decline MSCI EM is down 5%

and the S&P is down 3.6%.
The financial channel: US banking

exposures account for 5.5% of total banking
assets when looking at EM overall and 1.9%
when looking at the most troubled countries.
Neither channel seems large enough to create a

sustained impact on the US in our view.
The volatility response has been strong

Two of the largest ytd shifts in implied vol have
come from Turkey and Brazil (EWZ) with moves of
+11 and +7 vol pts, respectively. SPX 1m implied
vol is up +4 vol pts and VIX +5. The SPX vol move
appears high given the weak links between EM
and the US across trade and banking channels.
Low liquidity in many EM assets may be the
reason, as investors may prefer to use DM
markets as hedging tools during periods of stress.
Krag Gregory, Ph.D.

(212) 357-3770 krag.gregory@gs.com
Goldman, Sachs & Co.
Jose Gonzalo Rangel

(212) 357-6538 josegonzalo.rangel@gs.com
Goldman, Sachs & Co.
YTD SPX move > median 1m drawdown

To get a better understanding of how the recent
decline in the S&P 500 compares from an
historical perspective, we look at S&P 500 peaktrough declines back to 1960. The median SPX
drawdown over a 2-week period has been -2%,
and -3% over a 1-month period. The max
drawdown on the S&P 500 since its 2014 high of
1848.4 on January 15 has been -4%, a drop higher
than the median SPX drawdowns over 2-week and
1-month periods.
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US
affiliates are not registered/qualified as research analysts with FINRA in the U.S. This report is intended for distribution to GS institutional clients only.
The Goldman Sachs Group, Inc.
Global Investment Research
February 3, 2014
The response of global equity markets to EM pressure

Our Global Markets team believes that continued pressure on EM assets is unlikely to spill over into DM markets on a sustained
basis. As described in the latest Global Economics Weekly, What happens in EM (mostly) stays in EM, January 29, there are two
main channels through which EM weakness can affect DMs. The first is through trade, the second is through banking and financial
links.
The trade channel: Gross exports to EM are a little less than 5% of GDP for the US; therefore trade exposures seem
manageable except under a very broad-based EM slowdown. Goldman Sachs US economist Jan Hatzius estimates that
assuming a 10% drop in overall EM import demand as a result of the recent troubles would mechanically shave 0.5
percentage points from real GDP growth1.
The financial channel: BIS data reports overall exposure of the DM banking system to EM at around US$5trn, close to 20%
of overall external positions, so DM bank exposures to key EM economies do not look too alarming. US banking exposures
are likewise quite small, accounting for 5.5% of total banking assets when looking at EM overall and 1.9% when looking at
the most affected countries (Argentina, Brazil, Russia, South Africa, Turkey, Indonesia and India).
Impact on US corporate profits: Our economists estimate that EM subsidiaries account for 5.5% of US corporate profits overall
and for 1.0% when looking only at the most troubled economies. Again, short of a very bad outcome with significant contagion
across EM and the broader global economy, this is a manageable issue in our view.
Global equity volatility response

Last week, Central Banks in Turkey, India and South Africa all hiked rates. While these shifts are helpful, it is not yet clear how much
stability the measures will provide without further action. Volatility has already broadened beyond EM. We analyze year-to-date
equity returns and shifts in implied volatility across global equity indices and US country and sector ETFs to assess the shift in
global risk sentiment (Exhibit 1).
Strongest volatility response in Turkey and EWZ: Russia, Turkey, China and Brazil top the list of ytd market declines with
returns between -11% and -8%. Two of the largest ytd shifts in implied volatility have come from Turkey and Brazil (EWZ). Both
are EMs with large current account deficits and 1m implied volatility levels have increased seven and five vol points respectively.
While the EWZ is down 12%, implieds are only up 5.4 points, so one could argue that SPX implieds have taken a larger hit given
the respective index return. SPX 1m implied vol is currently at 15.6 and has increased 4 vol points in 2014 or approximately 1-to1 relative to the spot index move.
Why is volatility up so much in the US? As we saw last June, periods of extreme pressure in EM can spill over to DM markets
on a day-by-day basis. One line of reasoning is due to liquidity. Given low liquidity in many EM asset classes, investors may use
DM markets as hedging tools during times of stress or because pressure to reduce risk more generally forces selling of more
liquid assets. As we highlighted in last weeks edition of The Buzz, S&P 500 1m skew has been well bid and VIX open interest
and volume has been higher than one might expect given the low direct links between EM and DM trade and banking channels.
US Economic Analyst, A pothole for GDP growth, January 31, 2014.
Goldman Sachs Global Investment Research
February 3, 2014
Exhibit 1: Year-to-date moves across global equity markets.

The graphs below show 1m 50 delta implied volatility. As of January 31, 2014.
Where are we now? Current level of 1m implied volatility.
Country Equity Indices
44
39
35
34 34
34
29
26 26
24
17
1y Low
Return (%)
19
15
15
RDXUSD
31 31 31
29
29
26
23 23
21 21
19
14
1y High
40
40
20 20
18 18
17 17 17
12 13 11
9
4
25
24
28
28
25
23
12
11
10
12
12 12
Current 1m implied volatility
39
38
32
34
29
34
35
33
25
30
24
23
10
15
13
30
15
30
27
25
25
23
19
12
13
18
13
15
12
18
19
18
17
13
12
10
HSCEI
-9
12
11
17
10
17
12
16
11
15
11
18
17
14
13
2
3
-4
-4
FTSE 100
-4
NIFTY
-3
STOXX50E
-3
S&P/ASX 200
-3
Russell 2000
-3
DAX
-3
NASDAQ 100
-2
STOXX 600
-2
TWSE
-2
IBEX 35
S&P TSX 60
+2
-4
Korea (EWY)
-9
Emerging (EEM)
-9
Mexico (EWW)
-8
Hong Kong (EWH)
-7
Japan (EWJ)
-7
1
2
-6
-4
-12
-8
-4
12
Sector ETFs
4
Return (%)
3
6
3
Canada (EWC)
-6
Energy (XLE)
-6
Staples (XLP)
-5
Materials (XLB)
-5
Industrials (XLI)
-4
+1
Utilities (XLU)
12
4
2
-3
Health Care (XLV)
-4
Tech (XLK)
1m Impl Vol Chg.
Cons. Discr. (XLY)
Financials (XLF)
5
-8
-10
Taiwan (EWT)
S&P 500
-12
China (FXI)
-5
FTSE MIB
-8
Kospi 200
-12
-8
Hang Seng
12
1y Low
32
26
19
17
1y High
33
27
24
14
34
-9
Bovespa
Brazil (EWZ)
Turkey
1m Impl Vol Chg.
Return (%)
1m Impl Vol Chg.
-11
Nikkei 225
17 16 16 15
15 14
14
Country and US sector ETFs

44
Country ETFs
Global Equity Indices
Current 1m implied volatility
42
40 39
Moves: Dec 31, 2013 - Jan 31, 2014
Moves: Dec 31, 2013 - Jan 31, 2014
+3 0
-10
-5
10
Source: Goldman Sachs Global Investment Research.
February 3, 2014
Exhibit 2: Implied volatility response versus year-to-date equity returns across global indices.
X axis = ytd equity return (local currency); Y axis = change in 1m 50 delta implied volatility. As of January 31, 2014.
8
7
XU030
y = -0.06x + 3.53
Euro Stoxx 600
1m implied volatility shift
RUT
DAX
FTSE 100
SPX Euro Stoxx 50
5
RDXUSD
N225
EEM
NDX
HSI ASX 200 TWSE
HSCEI
IBEX
TSE60
Bovespa
FTSE MIB
Kospi 200
NIFTY
1
0
-12
-10
-8
-6
-4
-2
YTD return (%)
Perspective: Avg VIX level of 14.2 in January 2014 = avg over calendar year 2013
For all of the talk about heightened levels of volatility, the market is only down -3.6% from its closing high. S&P 500 realized
volatility over the month of January was 12.6 (a whopping 1.6 vol points above the full year realized volatility of 11 over 2013) and
the average VIX level in January was 14.2, the exact level of the average VIX level in 2013. But all of these statistics mask an increase
in volatility over the back-half of the month with five and ten-day realized volatility at 15, and Fridays closing VIX level of 18.41 was
the ytd high.
Growth heals all wounds? We also think a patch of softer US data and the fall in the flash China PMI were central to the recent
market declines. EM worries may have acted as a coordinating mechanism for investors already feeling overly exposed to cyclical
assets during a softer patch for US and global data and this week brings fresh US data including the ISM on Monday, ECB/BOE/RBA
decisions throughout the week and payrolls on Friday. While the Chinese markets are closed for the Lunar New Year Holiday,
Chinas official manufacturing PMI held in at 50.5 and a solid US ISM could remove a lot of the gloom that has descended on stocks.
February 3, 2014
US and global equity performance during EM equity pullbacks

Our US Portfolio Strategy team examined S&P 500 performance across 19 EM equity pullbacks of 5% or greater over the past
decade in US Thematic Views: EM pullbacks and the S&P 500, January 29, 2014. We extend the analysis to include VIX and global
equity performance. Exhibit 3 shows the performance of the MSCI EM index in local currency terms since 2004, excluding the
financial crisis. The median episode saw a 12% fall in EM equities accompanied by a 6% fall in the S&P 500. Across global indices,
Russia, China and Brazilian equities have tended to be hit the hardest. In the current decline MSCI EM is down 5% and the S&P is
down 4%.
Exhibit 3: Russia, China and Brazil have tended to be hit the hardest during EM equity pullbacks over the last decade
Returns on MSCI EM and the other global indices are in local currency. Returns on country ETFs are in USD. Data from January 2004 to January 31, 2014.
Equity Market Moves During EM Equity Pullbacks

MSCI EM Rtn (%)
(5)
(18)
(9)
(8)
(21)
(9)
(15)
(21)
(18)
(15)
(8)
(6)
(10)
(13)
(6)
(24)
(8)
(12)
(13)
(12)
(5)
S&P Rtn (%)

(3)
(5)
(6)
(2)
(8)
(6)
(6)
(15)
(25)
(25)
(5)
(5)
(8)
(10)
3
(14)
(10)
(8)
9
(6)
(4)
VIX Chg
3
5
3
0
12
9
13
11
33
14
1
7
9
18
4
21
10
11
4
9
5
Median equity return during EM equity pullbacks over the past

decade (local currency)
Brazil (EWZ)
China (FXI)
Emerging (EEM)
Korea (EWY)
Taiwan (EWT)
Mexico (EWW)
Canada (EWC)
Hong Kong (EWH)
Japan (EWJ)
Mar-04
Mar-04
Apr-04
May-04
Mar-05
Apr-05
Oct-05
Oct-05
May-06
Jun-06
Feb-07
Mar-07
Jul-07
Aug-07
Oct-07
Jan-08
Nov-08
Nov-08
Jan-09
Mar-09
Jun-09
Jun-09
Oct-09
Nov-09
Jan-10
Feb-10
Apr-10
May-10
Jan-11
Feb-11
Apr-11
Oct-11
Oct-11
Nov-11
Mar-12
Jun-12
Jan-13
Jun-13
19 epsiode median
Dec-13
Jan-14
Days
23
35
53
15
35
11
25
85
16
55
22
15
28
46
51
182
28
82
173
35
31
RDXUSD
HSCEI
Bovespa
XU030
Hang Seng
TWSE
NIFTY
FTSE MIB
Nikkei 225
Kospi 200
IBEX 35
Russell 200
DAX
TOPIX
FTSE 100
STOXX50E
NASDAQ 100
STOXX 600
S&P TSX 60
S&P/ASX 200
S&P 500
Dates
5
2
0
-5
-3
-5
-8
-10
-9
-11
-15
-20
-9
-14 -14
-16
-18
-13
-12 -11
-4
-4
0
-2
-3 -3
-3
-2 -2
-7
-3 -4
-4
-6
-6
-7 -7
-9 -8 -8 -8 -8 -8
-8
-9 -9
-10 -10 -10
-6
-10
-9 -9
-12
-15 -15
Median move
Current ytd move
-8
-7
-6
-11 -11
-14 -14
-13
-19
February 3, 2014
A deeper dive into tail moves: Distributional characteristics of S&P 500 max drawdowns
In this section we look more broadly at past S&P 500 peak-trough declines, in order to get a better understanding of how the recent
drop in the S&P 500 compares from an historical perspective. Using daily rolling data, we define a max drawdown to be the largest
peak-to-trough decline experienced when holding an asset over a specific time interval (Exhibit 4).
Historical perspective: Back to 1960, the median S&P 500 drawdown over a one-week period has been -1%. That is 1/3rd of the
median drawdown over a one-month period and about 1/7th of the median drawdown over a six-month period. We found
similar numbers over the more recent sample from 1990-present.
Current episode: The max drawdown on the S&P 500 since its 2014 high of 1848.4 on January 15 has been -4% based upon
closing levels from peak to local trough, a larger decline than the median SPX drawdown over past 2-week and 1-month periods.
Whereas the drawdown analysis only focuses on negative returns, exhibit 5 broadens the study and looks at the entire S&P 500
return distribution over different windows. For example, on a daily rolling basis the median one-month return on the S&P 500 is
about 1.1% and a bottom decile return is -4.6%, slightly lower than the S&P 500 decline in January.
Exhibit 4: Distributional characteristics of S&P 500 peak-to-trough max drawdowns.

Data from January 1960 to January 31, 2014.
Stats
25 %-ile
Median
75 %-ile
Drawdown Statistics from 1960 to January 2014

1-day 1-week 2-week 1-month 3-months 6-months
-0.43
-1.98
-3.16
-4.91
-8.70
-11.75
0
-1.03
-1.82
-3.08
-5.63
-7.70
0
-0.43
-0.96
-1.81
-3.93
-5.49
0%
(1)%
Std Dev
(4)%
(6)%
75 %-ile
(2)%
-0.43
0.43
0.43
-1.98 Median
3.00
0.95
(3)%-4.91
7.99
1.83
25 %-ile
-8.70
14.32
3.07
(6)%
-11.75
19.44
4.05
(8)%
(8)%
(10)%
(12)%
-18.64
29.28
8.01
(2)%
Maximal Drawdown
Maximal Drawdown
(2)%
0%
Median
(4)%
10.57
0.63
20.50
(3)%
25 %-ile
(6)%
(6)%
(8)%
(8)%
(10)%
(12)%
S&P 500 maximal drawdown
(14)%
Drawdown Statistics from 1990 to January 2014

1-day 1-week 2-week 1-month 3-months 6-months
-0.47
-2.24
-3.46
-5.08
-9.25
-12.56
0
-1.14
-2.01
-3.22
-5.60
-7.64
0
-0.51
-1.10
-1.91
-4.02
-5.48
0.72
1.70
3.44
5.74
7.84
0.72
0.56
0.22
0.14
0.19
75 %-ile
(1)% 0.72
2.85
6.66
11.34
15.48
(2)%
Stats
25 %-ile
Median
75 %-ile
Std Dev
S&P 500 maximal drawdown
(14)%
1-week
2-week
1-month
Investment Horizon
3-months
6-months
1-week
2-week
1-month
3-months
6-months
Investment Horizon
February 3, 2014
Exhibit 5: Distribution of S&P 500 returns.

The table on the right shows distributional features of SPX overlapping returns at different frequencies. Data from January 1990 to January 31, 2014.
Distribution of Monthly SPX Overlapping Returns

(1990-Present)
25%
S&P 500 Return Distributions 1990-Present

Stats
1d
5d
10d
1m
Min
-9.0
-18.3
-25.9
-30.0
5 %-ile
-1.8
-3.7
-4.8
-6.9
10 %-ile
-1.2
-2.6
-3.3
-4.6
25 %-ile
-0.5
-1.0
-1.3
-1.7
Median
0.1
0.3
0.5
1.1
Average
0.0
0.2
0.3
0.7
75 %-ile
0.6
1.5
2.1
3.3
90 %-ile
1.2
2.7
3.7
5.4
95 %-ile
1.7
3.7
5.0
7.1
Max
11.6
19.1
21.6
23.4
Frequency (%)
20%
15%
10%
5%
(%)
3m
-41.8
-11.9
-7.7
-1.6
2.7
2.1
6.7
10.1
13.1
38.8
22 - 24
18 - 20
14 - 16
10 - 12
6-8
2-4
(2) - 0
(6 ) - (4)
(10 ) - (8)
(14 ) - (12)
(18 ) - (16)
(22 ) - (20)
(26 ) - (24)
(30) - (28)
0%
February 3, 2014
Cross Asset Risk Barometer: EM credit spreads and FX implieds remain elevated
Exhibit 6: Outside Japan, 1m implieds remain below median levels across global indices. Credit spreads and FX 1m implieds are mixed. Commodity 1m implieds
remain low.
Data: January 2, 2007 January 31, 2014. Spanish and Italian 10y bond spreads in the table below refer to the spreads versus 10y German bonds. In the bar graph below
we benchmark changes relative to December 31, 2013.
1y
Peak
39.0
39.0
20.1
27.1
20.5
23.7
22.2
32.1
18.7
19.6
22.6
19.7
22.4
34.7
32.1
19.2
33.6
25.7
30.9
29.4
16.9
20.7
17.5
25.5
Overall
Peak
88.8
92.3
68.0
77.3
80.9
75.8
81.5
70.1
72.2
75.9
73.4
74.1
78.4
113.8
108.6
66.9
95.4
110.2
161.7
100.7
83.0
86.6
67.0
87.1
% to
Peak
245
282
356
234
339
284
350
226
363
393
303
354
299
400
373
391
345
566
529
553
618
506
439
380
Curr
Peak Date %-ile
27-Oct-08 70
27-Oct-08 64
16-Oct-08 42
27-Oct-08 41
20-Nov-08 41
16-Oct-08 38
10-Oct-08 38
16-Oct-08 38
20-Nov-08 38
16-Oct-08 34
16-Oct-08 31
20-Nov-08 30
20-Nov-08 29
27-Oct-08 27
24-Oct-08 26
28-Oct-08 24
27-Oct-08 23
27-Oct-08 19
26-Nov-08 19
27-Oct-08 11
13-Oct-08
8
29-Oct-08
8
28-Oct-08
7
31
Low - Risk Aversion - High
Current %-ile
(Since Jan. 2007)
Since January 2007
Index
Current
340
EEMCDS
I iTraxx Asia ex Jap.
150
I Italy 10y Bond Spr.
221
210
SSpain 10y Bond Spr.
I iTraxx Senior Fin.
102
82
EEU IG CDX 5y
I US IG CDX 5y
71
HUS HY CDX 5y
351
316
EEU XO CDX 5y
57
SSovX WE 5y
Chg
(1w)
-1.5
2.8
-2.2
-1.5
-3.5
-2.3
-1.0
-0.3
0.0
1.1
1y
Peak
378
171
348
385
200
133
98
478
528
108
Overall % to
Curr
Peak
Peak Peak Date %-ile
1022
201 23-Oct-08
86
650
334 24-Oct-08
66
552
150 9-Nov-11
65
633
202 24-Jul-12
58
361
256 25-Nov-11 35
217
164 5-Dec-08
23
283
296 20-Nov-08 14
1674
377 9-Mar-09
11
1158
266 5-Mar-09
10
387
578 25-Nov-11
5
FX Vol vs. USD (1m Implied)

18.1
12.5
13.7
8.3
10.7
11.4
9.3
8.6
7.2
7.1
ZZAR
MMXN
BBRL
KKRW
uAUD
uNZD
JJPY
CCHF
uGBP
uEUR
2.5
0.1
0.1
0.5
0.4
0.4
-0.7
0.5
0.1
0.5
20.1
17.6
18.7
13.3
15.2
15.8
17.5
12.5
9.8
10.0
70.0
74.9
75.0
75.4
47.8
42.8
37.3
25.3
30.8
28.8
287 23-Oct-08
502 22-Oct-08
447 23-Oct-08
813 24-Oct-08
346 27-Oct-08
275 27-Oct-08
299 27-Oct-08
193 18-Dec-08
329 27-Oct-08
306 30-Oct-08
67
59
51
35
33
31
26
25
25
16
30.0
27.2
31.9
60.0
83.6
117.4
281
427
493
25
5
5
Commodity Vol (1m Implied)

0
25
50
75
Curr %-ile
Gold
100 Copper
WTI
15.8
15.9
19.8
1.0
2.1
1.2
29-Oct-08
31-Oct-08
14-Jan-09
25
50
75
100
25
50
75
100
50
75
Curr %-ile
100
50
40
37 37 36
34 33
32
30
20
10
EUR
CHF
JPY
BRL
AUD
MXN
KRW
SovX WE 5y
Spain 10y Bond Spr.
Italy 10y Bond Spr.
EU XO CDX 5y
US IG CDX 5y
US HY CDX 5y
iTraxx Senior Fin.
EU IG CDX 5y
iTraxx Asia ex Jap.
EMCDS
NIFTY
Bovespa
MIB
KOSPI 200
HSCEI
TOPIX
43 42
ZAR
FX and Commodity Implied Volatility (1m)
Credit
EEM
Nikkei 225
RDXUSD
Hang Seng
IBEX
SMI
S&P/TSE 60
Nasdaq 100
EuroStoxx 50
ASX 200
Russell 2000
VIX
CAC40
TWSE
DAX
S&P 500
FTSE 100
% Change since December 31, 2013
Equity Implied Volatility (1m)
25
Gold
Chg
(1w)
3.5
3.3
1.2
0.3
0.3
1.7
1.9
1.7
1.1
2.2
1.7
0.9
2.6
2.1
1.3
2.1
-0.5
2.5
3.8
0.4
1.1
1.4
2.6
1.7
Credit Metrics (Levels)
Copper
Index
Current
Nikkei 225
25.7
TOPIX
24.1
Switzerland
14.9
Spain (IBEX)
23.2
VIX
18.4
Euro Stoxx 50
19.7
Germany (DAX)
18.1
Italy (MIB)
21.5
S&P 500
15.6
UK (FTSE 100)
15.4
France (CAC)
18.2
NDX
16.3
Russell 2000
19.6
China (HSCEI)
22.8
Em. Mkts. (EEM) 23.0
Australia
13.6
Bovespa
21.4
Hang Seng
16.6
Russia
25.7
India (NIFTY)
15.4
Canada
11.6
KOSPI 200
14.3
Taiwan
12.4
Average
18.6
Current %-ile
(Since Jan. 2007)
Since January 2007
WTI
Equity Vol (1m Implied)
38 38
29 27
27 26 25
21 20 20 20
18
24
15 13
13
17 17 16
15 14
10
22
10
9
3
13
8
1
0
-10
-20
-5
-1
-7
-2
-8
-13
February 3, 2014
Skew View: Highest in the US on both an absolute and percentile rank basis
Exhibit 7: Russell 2000 and S&P 500 one-month skew are highest on an absolute and percentile basis, RDXUSD and FTSE MIB are lowest
Normalized skew: (25 delta put 25 delta call) / 50 delta implied volatility. Percentiles are calculated using data from January 2, 2007 January 31, 2014.
Global
Indices
Option Volatility
(1m Implied)
1m Skew: Current %-ile

(Since Jan. 2007)
Option Skew
(Norm. 1m 25 delta)
1m Imp Chg Curr Skew Curr Overall Peak

% to
Current (1w) %-ile Current %-ile Peak
Date
Peak
Russell 2000
19.6
2.6
29
0.31
83
0.41
8/11/11
32
S&P 500
15.6
1.1
38
0.35
83
0.48
5/21/10
37
China (HSCEI)
22.8
2.1
27
0.17
78
0.37
8/9/11
122
Hang Seng
16.6
2.5
19
0.20
77
0.38
8/8/11
90
UK (FTSE 100)
15.4
2.2
34
0.30
76
0.46
8/10/11
56
France (CAC)
18.2
1.7
31
0.28
75
0.40 10/17/08 45
Australia
13.6
2.1
24
0.28
75
0.53
12/1/08
90
TOPIX
24.1
3.3
64
0.19
62
0.50
3/17/11 160
Nikkei 225
25.7
3.5
70
0.19
61
0.55
3/17/11 185
EuroStoxx 50
19.7
1.7
38
0.25
59
0.39 10/16/08 60
Germany (DAX)
18.1
1.9
38
0.25
58
0.39
8/15/07
54
Taiwan
12.4
2.6
7
0.13
46
0.55
8/16/07 330
NDX
16.3
0.9
30
0.24
40
0.43
5/21/10
82
KOSPI 200
14.3
1.4
8
0.14
26
0.48
8/19/11 251
Switzerland
14.9
1.2
42
0.20
23
0.38 10/17/08 93
Canada
11.6
1.1
8
0.21
21
0.46
11/8/11 118
India (NIFTY)
15.4
0.4
11
0.14
16
0.40
2/21/07 179
Spain (IBEX)
23.2
0.3
41
0.15
12
0.42 11/13/08 170
Bovespa
21.4
-0.5
23
0.13
11
0.42 10/30/08 220
Italy (MIB)
21.5
1.7
38
0.13
6
0.40 10/17/08 206
Russia
25.7
3.8
19
0.10
6
0.32 11/17/11 203
Average
18.4
1.8 30.4
0.21
47
0.43
133
0.35
Option Volatility
(1m Implied)
1m Skew: Current %-ile

(Since Jan. 2007)
Option Skew
(Norm. 1m 25 delta)
1m Imp Chg Curr Skew Curr Overall Peak % to

Index
Current (1w) %-ile Current %-ile Peak
Date Peak
17.8
0.4
20
0.22
67
0.44 08/11/11 103
XXLF (Financials)
XXLE (Energy)
17.6
2.4
14
0.22
64
0.44 12/11/07 104
17.3
0.9
29
0.27
61
0.53 08/16/07 96
XXLI (Industrials)
13.9
1.3
58
0.26
44
0.46 08/24/07 75
XXLP (Staples)
16.9
0.1
14
0.21
43
0.41 08/24/07 90
XXLB (Materials)
12.9
-0.6
29
0.19
30
0.68 04/26/07 254
XXLU (Utilities)
1.5
29
0.21
16
0.50 08/01/07 137
XXLY (Discretionary) 16.4
16.9
1.7
63
0.19
10
0.45 05/17/07 135
XXLV (Healthcare)
15.1
0.1
23
0.18
9
0.44 10/29/08 139
XXLK (Tech)
Average
16.1
0.9
31
0.22
38
0.48
126
EEWC (Canada)
EEWH (Hong Kong)
EEEM (Emer. Mkts.)
FFXI (China)
EEWY (Korea)
EEWJ (Japan)
EEWT (Taiwan)
EEWZ (Brazil )
Average
25
50
25
50
75
100
75
100
International ETFs
25
50
Vol %-ile
13.3
15.3
23.0
24.5
23.1
19.4
17.7
27.3
20.4
1.1
0.5
1.3
0.6
1.9
2.8
2.0
1.0
1.4
8
11
26
32
28
44
12
34
24
0.30
0.20
0.23
0.15
0.17
0.12
0.13
0.15
0.18
95
59
54
48
31
22
15
10
42
0.46
0.46
0.42
0.34
0.45
0.58
0.55
0.44
0.46
6/19/12
8/15/12
8/11/11
5/21/10
12/11/07
7/17/09
2/16/07
8/11/11
52
125
81
121
169
382
321
201
182
Vol %-ile
75
100
Skew %-ile
Skew %-ile
1m Normalized Skew
0.45
0.40
US Sector
ETFs
Global Indices
0.31 0.30
0.30
0.28 0.28
0.25
Sectors
Country ETFs
0.35
0.30
0.25 0.25
0.24
0.20
0.27 0.26
0.21 0.20 0.20
0.19 0.19
0.15
0.23
0.17 0.15
0.14 0.14 0.13 0.13 0.13
0.22 0.22 0.21 0.21
0.20
0.17 0.15
0.15
0.10
0.13
0.19 0.19 0.18
0.12
0.10
0.05
XLK (Tech)
XLV (Healthcare)
XLU (Utilities)
XLY (Discretionary)
XLB (Materials)
XLF (Financials)
XLE (Energy)
XLP (Staples)
XLI (Industrials)
EWJ (Japan)
EWT (Taiwan)
EWZ (Brazil )
FXI (China)
EWY (Korea)
EWH (Hong Kong)
EEM (Emer. Mkts.)
EWC (Canada)
Russia
Taiwan
Italy (MIB)
Bovespa
KOSPI 200
India (NIFTY)
Spain (IBEX)
Nikkei 225
China (HSCEI)
TOPIX
Switzerland
Hang Seng
NDX
Canada
EuroStoxx 50
Germany (DAX)
France (CAC)
Australia
Russell 2000
UK (FTSE 100)
S&P 500
0.00
February 3, 2014
Exhibit 8: SPY normalized skew (3m)
Exhibit 9: IWM normalized skew (3m)
Exhibit 10: QQQ normalized skew (3m)
As of January 31, 2014 market close. Normalized

skew: (25 delta put25 delta call) / 50 delta implied vol.


0.33
0.28
0.23
Jan-13
Apr-13
Jul-13
Oct-13
0.34
0.31
0.28
0.25
Jan-13
Jan-14
QQQ normalized skew (3m)
0.38
IWM normalized skew (3m)
SPY normalized skew (3m)
0.32
Apr-13
Jul-13
Oct-13
Jan-14
0.28
0.24
0.20
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Exhibit 11: Euro Stoxx 50 normalized skew (3m)
Exhibit 12: EEM normalized skew (3m)
Exhibit 13: HSCEI normalized skew (3m)



0.25
0.28
0.25
0.22
0.19
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
0.36
HSCEI normalized skew (3m)
EEM normalized skew (3m)
STOXX50E normalized skew (3m)
0.31
0.32
0.28
0.24
0.20
0.16
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
0.20
0.15
0.10
0.05
0.00
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
10
February 3, 2014
VIX Quicks: VIX @ 18.4, Feb to Jun VIX futures shift up ~0.2 to 1.4 vol pts.
Exhibit 14: The VVIX closed last Friday at 99.7, its highest level since Oct 2013.
Exhibit 15: The VIX term structure remains inverted.
As of January 31, 2014.
Data as of January 31, 2014.
CBOE VVIX Index

130
VIX Futures
Date
24-Jan-14
31-Jan-14
1 wk Chg
1 wk % Chg
120
110
100
S&P 500 VIX Spot Feb-14 Mar-14

1,790.3
18.1
16.2
16.2
1,782.6
18.4
17.6
17.4
-7.7
0.3
1.4
1.2
-0.4%
1.5%
8.6%
7.1%
Apr-14
16.8
17.4
0.6
3.9%
May-14 Jun-14 Jul-14

17.3
17.7
18.2
17.7
17.9
18.2
0.4
0.2
0.0
2.3%
0.8%
0.0%
Term Structure of VIX Spot and VIX Futures over Time

19
90
19
18
80
18
70
18.4
17.6
18.1
17.4
17.7
17.4
16.8
16
Jan-13
Jul-13
Jan-14
18.2
17.3
17
Jul-12
18.2
17.7
17
60
Jan-12
17.9
16.2
16
16.2
15
31-Jan-14
15
24-Jan-14
14
Exhibit 16: VIX futures across maturities.
VIX Spot
As of January 31, 2014.
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Changes in VIX spot and futures (Jan 24 to Jan 31)
Volatility (%)
21
19
16
1.4
Jun = 17.85
Apr = 17.4
Mar = 17.35
14
11
Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14
1.2
May = 17.65
0.6
0.4
0.3
0.2
Feb = 17.6
VIX = 18.41
VIX Spot
Feb-14
Mar-14
Apr-14
May-14
Jun-14
0.0
Jul-14
11
February 3, 2014
Hedging Landscape (95% Put Pricing): TWSE and S&P TSE 60 puts lowest cost globally
Exhibit 17: 1m 95% put pricing: TWSE the lowest globally.
Exhibit 18: 3m 95% put pricing: S&P TSE 60 the lowest globally.
Indicative pricing as of January 31, 2014. Pricing (% spot). Risk: the maximum loss
from buying a put is the upfront premium paid.
Indicative pricing as of January 31, 2014. Pricing (% spot). Risk: the maximum loss
from buying a put is the upfront premium paid.
TWSE
S&P/TSE 60
KOSPI 200
NIFTY
ASX 200
SMI
HSI
FTSE 100
DAX
Bovespa
Euro Stoxx 50
HSCEI
TOPIX
RDXUSD
Nikkei 225
RankOrderbyCost(%spot)
Country Indices
0.25
0.28
0.32
0.36
0.50
0.52
0.57
0.62
0.70
0.77
0.82
1.03
1.14
1.20
1.29
EWC
EWH
SPY
QQQ
EWT
EWJ
IWM
EWY
EEM
FXI
EWZ
Country ETFs
0.55
0.58
0.61
0.61
0.72
0.76
0.94
1.12
1.21
1.26
1.45
XLU
XLK
XLP
XLY
XLV
XLB
XLE
XLI
XLF
0.39
US Sector ETFs
US Sector ETFs
Country ETFs
Country Indices
RankOrderbyCost(%spot)
0.50
0.52
0.59
0.64
0.64
0.67
0.69
0.70
0.0
0.3
0.6
0.9
Cost of 1m 95% Puts (% of Spot)
1.2
1.5
S&P/TSE 60
KOSPI 200
TWSE
ASX 200
NIFTY
FTSE 100
DAX
HSI
SMI
Bovespa
Euro Stoxx 50
HSCEI
TOPIX
Nikkei 225
RDXUSD
1.03
1.15
1.17
1.43
1.74
1.78
1.85
1.89
1.98
1.99
2.26
2.69
2.82
3.04
3.18
EWC
SPY
QQQ
EWH
EWJ
EWT
IWM
EWY
EEM
FXI
EWZ
1.55
1.74
1.78
1.81
2.09
2.15
2.53
2.83
3.01
3.15
3.54
XLU
XLP
XLK
XLV
XLY
XLB
XLI
XLF
XLE
1.42
1.44
1.65
1.81
1.82
1.96
1.97
1.99
2.05
0
2
3
Cost of 3m 95% Puts (% of Spot)
12
February 3, 2014
Global Put Spreads: S&P TSE 60 and TWSE screen as the highest payout ratios
To screen for hedging candidates, we rank order the maximum payout ratios (maximum gain/entry cost) of 1m 97.5% /
92.5% put spreads, assuming each underlier settles below the lower put strike at expiration.
Risks: The maximum loss from buying a put spread is the upfront premium paid.
Exhibit 19: Maximum payout ratios for 1m and 3m 97.5% / 92.5% put spreads.
Payout ratios: maximum gain / entry price assuming each underlier settles below the lower put strike at expiration. Indicative pricing as of January 31, 2014.
Put Spreads 97.5% / 92.5%
Country Indices
S&PTSE60
TWSE
KOSPI200
NIFTY
ASX200
FTSE100
HangSeng
SMI
DAX
Bovespa
EuroStoxx50
HSCEI
TOPIX
Nikkei225
RDXUSD
Country ETFs
EWC(MSCICanada)
SPY(SPDRS&P500ETFTrust)
EWH(MSCIHongKong)
QQQ(PowerSharesQQQTrustSeries)
EWT(MSCITaiwan)
IWM(iSharesTrustRussell2000Index)
EWJ(MSCIJapan)
EEM(MSCIEmergingMarkets)
EWY(MSCIKorea)
FXI(iSharesFTSEChina25Index)
EWZ(MSCIBrazil)
US Sector ETFs
XLU(Utilities)
XLP(Staples)
XLK(Tech)
XLY(Discretionary)
XLV(Healthcare)
XLB(Materials)
XLF(Financials)
XLI(Industrials)
XLE(Energy)
Put Strikes
Put Spread
Index Level
Strikes (% of spot)
Strikes
97.5/92.5
765.9/726.6
97.5/92.5
8251/7827.9
97.5/92.5
246.6/233.9
97.5/92.5
5937.3/5632.8
97.5/92.5
5060.3/4800.8
97.5/92.5
6347.7/6022.2
97.5/92.5
21484.5/20382.8
97.5/92.5
7986.6/7577
97.5/92.5
9073.8/8608.5
97.5/92.5
46448/44066.1
97.5/92.5
2938.6/2787.9
97.5/92.5
9572.9/9082
97.5/92.5
1190.1/1129.1
97.5/92.5
14541.7/13795.9
97.5/92.5
1489.8/1413.4
Pricing by Term
Premium (% of spot)
M ax Payout Ratios
1m
3m
1m
3m
0.45
1.06
11.1
4.7
0.52
1.24
9.6
4.0
0.56
1.10
8.9
4.5
0.57
1.19
8.8
4.2
0.65
1.14
7.7
4.4
0.71
1.30
7.0
3.8
0.73
1.43
6.8
3.5
0.74
1.64
6.8
3.0
0.81
1.25
6.2
4.0
0.87
1.33
5.7
3.8
0.89
1.46
5.6
3.4
1.02
1.59
4.9
3.1
1.06
1.72
4.7
2.9
1.14
1.74
4.4
2.9
1.23
1.78
4.1
2.8
Maximum Payout Ratios

Strategy: 1m Put Spread 97.5% / 92.5%
0
10
S&P/TSE 60
TWSE
9.6
KOSPI 200
8.9
NIFTY
8.8
ASX 200
7.7
FTSE
7.0
HSI
6.8
SMI
6.8
DAX
6.2
Bovespa
5.7
Euro Stoxx 50
5.6
HSCEI
4.9
TOPIX
Nikkei 225
RDXUSD
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
27.2/25.8
173.7/164.8
18.6/17.7
84.1/79.8
13.2/12.6
109.4/103.8
11.1/10.5
37.2/35.3
57.6/54.6
33.7/32
38.3/36.3
0.57
0.68
0.71
0.72
0.78
0.90
0.95
0.99
1.04
1.07
1.24
1.05
1.15
1.30
1.31
1.44
1.44
1.50
1.53
1.62
1.63
1.74
8.8
7.4
7.0
6.9
6.4
5.6
5.3
5.1
4.8
4.7
4.0
4.8
4.3
3.8
3.8
3.5
3.5
3.3
3.3
3.1
3.1
2.9
EWC
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
97.5/92.5
38.1/36.2
39.7/37.7
34/32.2
61.3/58.1
54.6/51.8
42.9/40.7
20.5/19.5
48.8/46.3
81.3/77.1
0.50
0.53
0.63
0.69
0.71
0.71
0.75
0.75
0.77
1.28
1.11
1.29
1.30
1.29
1.38
1.34
1.34
1.42
10.0
9.4
7.9
7.2
7.0
7.0
6.7
6.7
6.5
3.9
4.5
3.9
3.8
3.9
3.6
3.7
3.7
3.5
XLU
4.7
4.4
4.1
8.8
SPY
7.4
EWH
7.0
QQQ
6.9
EWT
6.4
IWM
5.6
EWJ
5.3
EEM
5.1
EWY
4.8
FXI
EWZ
4.7
4.0
10.0
XLP
9.4
XLK
7.9
XLY
XLV
XLB
XLF
XLI
XLE
12
11.1
7.2
7.0
7.0
6.7
6.7
6.5
13
February 3, 2014
US Volatility Landscape
Exhibit 20: 50-delta implied volatility comparison across US indices
Data as of January 31, 2014 market close.
S&P 500 (SPX)
Russell 2000 (RUT)
Nasdaq 100 (NDX)
Performance - 1 week
-1.5%
1m Vol: +1.1
1y %-ile: 96%
1m Vol: +2.6
1y %-ile: 95%
1m Vol: +0.9
1y %-ile: 96%
3m
6m
12m
24m
1m
3m
6m
12m
24m
1m
3m
6m
12m
24m
Current (31-Jan-14)
15.6
15.4
15.9
16.7
17.7
19.6
19.6
19.8
20.5
21.4
16.3
16.0
16.5
17.6
19.2
1w Chg (since 24-Jan-14)
1.1
0.8
0.6
0.6
0.3
2.6
1.8
1.1
0.5
0.2
0.9
0.4
0.1
-0.1
0.1
YTD Chg (since 31-Dec-13)

%-ile Rank (1y)
4.6
3.0
2.3
1.5
0.6
4.9
3.2
2.1
1.0
0.5
3.5
1.9
1.3
0.6
-0.1
96%
90%
88%
83%
65%
95%
90%
86%
82%
69%
96%
86%
81%
60%
43%
Current (31-Jan-14)
12.8
10.6
10.6
11.4
12.2
16.6
14.7
14.7
15.2
16.1
15.9
12.4
12.2
12.7
14.2
1.3
0.5
0.2
0.1
0.0
2.7
0.8
0.4
0.2
0.0
2.1
0.9
0.4
0.2
0.1
3.1
0.2
0.8
0.3
0.1
3.0
0.1
1.0
0.6
0.1
6.7
0.5
1.0
0.2
0.2
73%
25%
12%
18%
10%
76%
45%
36%
54%
11%
89%
41%
17%
12%
10%
Current (31-Jan-14)
2.8
4.8
5.2
5.3
5.6
3.1
4.9
5.2
5.2
5.4
0.4
3.6
4.3
4.9
4.9
-0.2
0.3
0.4
0.5
0.3
-0.1
1.0
0.7
0.3
0.2
-1.2
-0.4
-0.2
-0.3
0.0
1.5
2.8
1.5
1.3
0.4
1.8
3.0
1.1
0.4
0.4
-3.2
1.4
0.3
0.4
-0.2
66%
96%
100%
95%
99%
69%
95%
98%
80%
98%
40%
88%
93%
95%
92%
Current (31-Jan-14)
0.35
0.37
0.38
0.37
0.34
0.31
0.34
0.33
0.33
0.33
0.24
0.26
0.25
0.26
0.26
-0.02
0.00
0.01
0.01
0.00
-0.04
-0.02
-0.01
0.00
-0.01
-0.01
-0.01
0.00
0.00
0.01

%-ile Rank (1y)
0.08
0.05
0.03
0.00
0.00
0.06
0.02
-0.01
-0.03
-0.03
0.05
0.02
0.01
0.01
0.01
86%
88%
83%
71%
31%
86%
90%
57%
53%
40%
58%
47%
18%
6%
8%
-1.0%
0.0%
-1.2%
-0.6%
1m Vol Stats
Implied Volatility
-0.5%
-0.4%
3m Vol Stats
SPX
RUT
NDX
SPX
RUT
NDX
16
20
16
15
20
16
17
16
15
12
96%
95%
88%
88%
90%
Impl Vol
(%)
1m
SPX
RUT
NDX
Realized Volatility
11
Implied vs Realized
86%
31-Jan
24-Jan
Implied Volatility (%)
Chart Legend
17
24
1m-6m: -0.3 (97%-ile)

1m-12m: -1.1 (98%-ile)
16
15
15
15
14
13
14
15
16
15
16
18
17
17
16
16
22
20
20
19
20
18
16
20
17
21
20
21
19
17
20
20
20
22
14
11
14
12
12
10
1m
2m
3m
6m
9m 12m 24m
1m
2m
3m
6m
19
16
16
16
16
18
9m 12m 24m
1.5
20
18
15
15
16
17
16
17
17
58%
47%
YTD 1m Vol Change (1 = 31-Dec-12)
1m-6m: -0.2 (98%-ile)

1m-12m: -1.2 (98%-ile)
24
1m-6m: -0.2 (97%-ile)

1m-12m: -0.8 (98%-ile)
86%
Skew
1y %-ile
19
69%
40%
Normalized Skew*
Term Structure
Impl - Rlzd
1y %-ile
%-ile Rank (1y)
66%
Rlzd Vol
(%)
%-ile Rank (1y)
13
SPX: 1.42
RUT: 1.33
NDX: 1.27
1.4
1.3
18
19
18
1.2
1.1
1.0
0.9
1m
2m
3m
6m
9m 12m 24m
0.8
31-Dec 5-Jan
10-Jan 15-Jan 20-Jan 25-Jan 30-Jan
* Normalized skew: (25 delta put - 25 delta call)/ 50 delta
14
February 3, 2014
Global Volatility Landscape
Exhibit 21: 50-delta implied volatility comparison across global indices.

Data as of January 31, 2014 market close.
ATM Implied Volatility

Realized Volatility
1m Implied Volatility
Level
1w Chg
1y
%-ile
90%
4.8
16.7
+0.6
83%
5.3
+1.8
90%
4.9
20.5
+0.5
82%
5.2
16.0
+0.4
86%
3.6
17.6
-0.1
60%
4.9
18.6
+0.8
74%
4.4
18.8
-0.1
30%
2.5
15.0
+1.1
85%
5.2
15.7
+0.5
65%
3.5
Level
1w Chg
1y
%-ile
95%
2.8
15.4
+0.8
+2.6
95%
3.1
19.6
16.3
+0.9
96%
0.4
19.7
+1.7
90%
4.7
+2.2
90%
5.1
1m
3m
6m
12m
Level
1w Chg
1y
%-ile
S&P 500
12.8
10.6
10.6
11.4
15.6
+1.1
Russell 2000
16.6
14.7
14.7
15.2
19.6
Nasdaq 100
15.9
12.4
12.2
12.7
EuroStoxx 50
15.0
14.2
13.7
16.3
FTSE-100
10.3
9.8
10.1
12.2
15.4
Implied
Realized

Less
Rlzd
Less
Rlzd
Index
Performance
Implied
Realized
Implied
Less
Rlzd
Realized
DAX
14.1
12.7
12.3
14.8
18.1
+1.9
91%
4.0
17.2
+1.0
81%
4.5
17.4
+0.5
52%
2.7
Nikkei 225
25.9
22.0
23.5
27.4
25.7
+3.5
68%
-0.1
24.0
+1.7
55%
2.0
22.3
+0.7
50%
-5.1
TOPIX
23.0
17.7
20.1
24.3
24.1
+3.3
52%
1.2
22.6
+1.6
34%
4.9
21.2
+0.6
36%
-3.0
KOSPI 200
14.5
13.4
12.5
13.7
14.3
+1.4
50%
-0.2
15.0
+0.8
47%
1.5
16.1
+0.4
27%
2.4
Hang Seng
12.2
11.7
11.8
13.8
16.6
+2.5
78%
4.4
17.6
+1.5
87%
6.0
18.5
+0.6
85%
4.7
MSCI EEM
22.0
19.0
19.7
19.3
23.0
+1.3
86%
1.0
23.0
+0.9
88%
4.0
22.5
+0.2
68%
3.2
Bovespa
16.8
17.7
20.1
20.7
21.4
-0.5
44%
4.6
20.6
-0.7
37%
2.9
20.5
-0.2
40%
-0.2
S&P/TSE 60
11.0
9.1
9.3
10.7
11.6
+1.1
59%
0.5
11.4
+0.3
25%
2.2
13.7
+0.1
19%
3.0
NIFTY
13.0
14.7
20.4
18.3
15.4
+0.4
32%
2.4
20.1
+2.7
79%
5.4
24.3
+0.8
90%
6.0
MSCI EAFE
10.2
10.2
10.6
12.4
16.2
+2.6
80%
6.1
15.8
+1.4
63%
5.6
17.2
+0.6
28%
10
20
30
40
50
5
S&P/TSE 60
KOSPI 200
S&P 500
FTSE-100
MSCI EAFE
DAX
Nasdaq 100
Hang Seng
Russell 2000
EuroStoxx 50
NIFTY
TOPIX
Bovespa
Nikkei 225
1w Change in 1m Implied Vol (%)
10
-0.6%
-0.5%
-2.3%
-0.9%
-3.1%
-3.5%
0.0%
-1.4%
-0.1%
-0.3%
-0.3%
-2.8%
10
20
30
40
-2.3%
-4%
50
-2%
0%
1m Implied Vol Change vs. Performance
Bovespa
15
S&P/TSE 60
15
MSCI EEM
15
11
MSCI EEM
50
Nasdaq 100
16
15
KOSPI 200
16
40
EuroStoxx 50
17
DAX
18
S&P 500
19
TOPIX
20
20
Nikkei 225
20
FTSE-100
21
Hang Seng
23
MSCI EAFE
23
30
16%
14%
14%
12%
9% 9%
8%
10%
7% 7% 7%
8%
6% 5%
5%
6%
4% 4%
3% 2%
4%
2%
0%
-2%
-4%
-3%
-6%
NIFTY
24
% Implied Volatility Change
Implied Volatility (%)
25
20
-0.4%
-1.2%
4.8
0
1w % Change in 3m Implied Volatility
30
Russell 2000
3m Implied Volatility Level
10
1w Return (%)
4.0
3.5
TOPIX
Nikkei 225
3.0
MSCI EAFE
Hang Seng
2.5
Russell 2000
DAX
FTSE-100
2.0
1.5
EuroStoxx 50
S&P/TSE 60
1.0
0.5
S&P 500
Nasdaq 100
NIFTY
0.0
Bovespa
-0.5
-1.0
-4.0%
MSCI EEM
KOSPI 200
-3.5%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
1w Index Return (%)
15
February 3, 2014
The Correlation Connection: SPX 1m realized correlation, 34th %-ile vs a 5y history

Exhibit 22: S&P 500 implied and realized correlation across maturities.
5y history through January 31, 2014 market close.
0.90
S&P 500: Implied and Realized Correlation
S&P 500 1m realized correlation at 34th %-ile
Implied
0.80
Current
5y %-ile
1m ago
1m Chg
Min
25 %-ile
Median
75 %ile
Max
0.70
0.60
0.50
0.40
0.30
0.20
3m
0.41
0.14
0.34
0.07
0.30
0.44
0.49
0.54
0.74
Realized
12m
0.47
0.10
0.43
0.04
0.41
0.50
0.53
0.59
0.70
24m
0.51
0.12
0.51
0.01
0.46
0.53
0.55
0.60
0.71
1m
0.33
0.34
0.31
0.02
0.10
0.29
0.39
0.50
0.83
3m
0.28
0.05
0.29
-0.01
0.22
0.32
0.38
0.47
0.75
6m
0.28
0.02
0.25
0.02
0.24
0.33
0.38
0.54
0.70
12m
0.28
0.01
0.30
-0.01
0.27
0.37
0.46
0.53
0.61
24m
0.31
0.00
0.34
-0.03
0.31
0.46
0.49
0.51
0.57
S&P 500 Realized Correlation
S&P 500 Implied Correlation
0.9
6m
0.44
0.12
0.38
0.06
0.35
0.48
0.52
0.57
0.72
Nov-13
Aug-13
May-13
Feb-13
Nov-12
Aug-12
May-12
Feb-12
Nov-11
Aug-11
May-11
Feb-11
Aug-10
May-10
0.10
Nov-10
S&P 500 1m Implied Correlation

S&P 500 1m Realized Correlation
1m
0.37
0.24
0.29
0.09
0.21
0.38
0.45
0.53
0.79
0.8
0.7
Correlation
0.6
0.5
0.4
0.3
0.2
25-75 %-ile
Max
Min
1w Ago
Current
0.1
0.0
Imp Corr 1m
Imp Corr 3m
Imp Corr 6m
Imp Corr 12m
Imp Corr 24m
Real Corr 1m
Real Corr 3m
Real Corr 6m
Real Corr 12m
Real Corr 24m
16
February 3, 2014
Exhibit 23: One-month implied and realized correlation metrics across the S&P 500 and sector ETFs.
5y history through January 31, 2014 market close.
1m Realized Correlation, 1 month change
1m Realized Correlation
0.7
0.25
0.66
0.59
0.6
0.4
0.12
0.15
0.50
0.5
0.22
0.20
0.55
0.39
0.10
0.10
0.39
0.36
0.33
0.36
0.07
0.00
0.00
0.27
0.3
0.04
0.02
0.05
-0.05
0.2
-0.03
-0.10
0.1
-0.15
0.0
-0.20
SPX
XLU
XLF
XLI
XLE
XLB
XLE
lcorr
Rcorr
0.45
0.50
0.41
0.28
1.03
0.86
0.64
0.60
0.32
0.22
SPX
lcorr
Rcorr
Current
0.37
0.33
1 month ago 0.29
0.31
High (5y)
0.79
0.83
Median (5y)
0.45
0.39
Low (5y)
0.21
0.10
XLY
XLV
XLF
lcorr
Rcorr
0.59
0.59
0.52
0.62
0.95
0.94
0.66
0.58
0.45
0.19
XLP
SPX
XLK
XLK
lcorr
Rcorr
0.31
0.27
0.21
0.16
0.78
0.75
0.45
0.39
0.17
0.03
XLP
lcorr
Rcorr
0.46
0.36
0.37
0.50
0.71
0.85
0.44
0.40
0.23
0.07
XLE
XLY
lcorr
Rcorr
0.32
0.39
0.27
0.27
0.86
0.81
0.45
0.39
0.22
0.11
XLY
XLK
XLU
XLB
lcorr
Rcorr
0.44
0.39
0.32
0.39
0.90
0.89
0.57
0.54
0.28
0.10
lcorr
0.58
0.41
0.93
0.63
0.35
XLI
XLI
Rcorr
0.55
0.50
0.94
0.59
0.16
XLB
XLF
XLV
lcorr
Rcorr
0.42
0.36
0.30
0.51
0.77
0.80
0.43
0.40
0.22
0.08
-0.14
-0.14
XLV
XLP
XLU
lcorr
Rcorr
0.60
0.66
0.59
0.59
1.00
1.00
0.62
0.59
0.12
0.19
S&P 500 and Sectors: 1m Implied and Realized Correlation (5y)
Impl vs Rlzd Corr (1m)
1.2
XLE
SPX
XLF
XLK
XLP
XLY
XLB
XLI
XLV
XLU
1.0
0.8
25-75 %-ile
Max
Min
1w Ago
Current
0.6
0.4
0.2
0.0
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
ICorr
RCorr
17
February 3, 2014
ETF risks
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from the issuers of the ETFs mentioned in this material for the purposes of resale. As of January 30, 2014, Goldman Sachs has the
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XLF, XLP, XLU, XLV, XLY.
18
February 3, 2014
Disclosure Appendix
Reg AC
We, Krag Gregory, Ph.D. and Jose Gonzalo Rangel, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or
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Disclosures
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Investment Banking Relationships
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32%
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February 3, 2014
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February 3, 2014

The Buzz: Equity and vol market

Global equity performance on prior EM pullbacks

Historical perspective: US and global

The trade channel: gross exports to EM are a

We looked at S&P 500, VIX and global equity

little less than 5% of GDP for the US.

The median episode saw a 12% fall in EM

Across global equity indices, Russia, China

In the current decline MSCI EM is down 5%

The financial channel: US banking

Neither channel seems large enough to create a

The volatility response has been strong

Krag Gregory, Ph.D.

Jose Gonzalo Rangel

YTD SPX move > median 1m drawdown

The Goldman Sachs Group, Inc.

Global Investment Research

The response of global equity markets to EM pressure

Global equity volatility response

US Economic Analyst, A pothole for GDP growth, January 31, 2014.

Goldman Sachs Global Investment Research

Exhibit 1: Year-to-date moves across global equity markets.

Where are we now? Current level of 1m implied volatility.

Country Equity Indices

Current 1m implied volatility

Hong Kong (EWH)

Health Care (XLV)

1m Impl Vol Chg.

Cons. Discr. (XLY)

1m Impl Vol Chg.

1m Impl Vol Chg.

Country and US sector ETFs

Global Equity Indices

Current 1m implied volatility

Moves: Dec 31, 2013 - Jan 31, 2014

Moves: Dec 31, 2013 - Jan 31, 2014

Source: Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research

1m implied volatility shift

Source: Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research

US and global equity performance during EM equity pullbacks

Equity Market Moves During EM Equity Pullbacks

S&P Rtn (%)

Median equity return during EM equity pullbacks over the past

Source: Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research

Exhibit 4: Distributional characteristics of S&P 500 peak-to-trough max drawdowns.

Drawdown Statistics from 1960 to January 2014

S&P 500 maximal drawdown

Drawdown Statistics from 1990 to January 2014

S&P 500 maximal drawdown

Source: Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research

Exhibit 5: Distribution of S&P 500 returns.

Distribution of Monthly SPX Overlapping Returns

S&P 500 Return Distributions 1990-Present

Source: Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research

Low - Risk Aversion - High

Since January 2007

FX Vol vs. USD (1m Implied)

Commodity Vol (1m Implied)