Does the flap of a butterfly's wings in Brazil set off a tornado in Texas?
The impact of the subprime crisis is not restricted to collateralised debt obligations and Bear Stearns, to name but two obvious examples. The UK's Northern Trust, with negligible direct subprime exposure, felt the draught from the subprime butterfly's wings. Similarly, an obvious casualty has been the US dollar (USD). Marginally less obvious was that material USD declines against the Japanese yen (JPY) would result in significant increases in at-themoney Volatility (ATMV) and perhaps, less obviously, to increasing skewness favouring USD puts.