Nuclear war in Korea? Investors aren’t worried
The cost of risk hedges in South Korea is back down to lower part of 12-year range
Armageddon may be in the offing on the Korean peninsula, but you would never know it by watching the cost of hedges on Korea’s exchange rate and equity market.
The chart shows the implied volatility of 3-month options on the widely-traded Korea ETF (ticker EWY) against the implied volatility of options on Korea’s exchange rate. Both have fallen back to the lower part of their 12-month range.
Markets aren’t necessarily a reliable guide to exogenous risks (for example, nuclear war), but the reality is that none of the players wants a “kinetic solution,” that is, actual shots fired.