Volatility of Volatility
Volatility of Volatility — Uncertainty about future volatility, critical for tail hedges and vol-of-vol products.
Definition
Volatility of Volatility refers to uncertainty about future volatility, critical for tail hedges and vol-of-vol products. Keep that definition fixed when comparing series, managers, or regimes — renaming the same tape does not create a new signal.
Why it matters
Options and futures embed views on vol, skew, and path that cash markets only hint at. When uncertainty about future volatility, critical for tail hedges and vol-of-vol products shifts, related hedges, limits, and narratives usually need an explicit update rather than a quiet assumption.
Case
Suppose a desk is positioned for the opposite of what volatility of volatility is saying. If uncertainty about future volatility, critical for tail hedges and vol-of-vol products moves against that book, the first question is not “is the story clever?” but whether size, hedges, and stop logic still match the observation.
How to read it
State the expiry and Greek exposure; unmarked vol or pinning effects rewrite the thesis. Prefer a short written null hypothesis for Volatility of Volatility: what would falsify the current reading in the next window?