Feng Yu
Posted on Sep 9
AI-assisted
On September 4, 2026, the VIX sat at its 18th percentile in five years. The SKEW index sat at its 83rd. The market was calm. And it was simultaneously terrified. This is the story of that contradiction — and why it matters for anyone building risk models.
In Part 1, I built a crash simulator using insurance catastrophe modeling. In Part 2, I explained why vine copulas are the mathematical fix for the "correlations converge to 1" problem. This part is about something simpler and stranger: how the options market prices tail risk — and how it keeps pricing it even when nothing bad is happening.
