# **Figure 1 Uncertainty and Balance of Risks for Risk Factors**

**_Uncertainty._** _The implied current-year volatility of equity price options and next-year volatility of term-spread forecasts have increased since the second half of 2015 but remain near their historical medians. In contrast, the implied volatility of oil price futures widened to post-crisis highs, pointing to increased uncertainty._ **_Balance of risks._** _The distribution of future equity prices is increasingly tilted to the downside while that of oil price futures is tilted to the upside. Movements in the skewness of term spread forecasts are mixed. Together, these developments suggests high uncertainty and rising downside risk to global growth for 2016 and 2017 ._

## **A. S&P500: Degree of Uncertainty**

<!-- Start of picture text --> Implied volatility<br>Current year Next year<br>50 Current year median Next year median<br>40<br>30<br>20<br>10<br>0<br>2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016<br><!-- End of picture text -->

## **C. Term Spread: Degree of Uncertainty**

<!-- Start of picture text --> Standard deviation<br>Current year Next year<br>Current year median Next year median<br>0.6<br>0.5<br>0.4<br>0.3<br>0.2<br>0.1<br>E. Oil Price: Degree of Uncertainty<br>Implied volatility<br>Current year Next year<br>Current year median Next year median<br>60<br>50<br>40<br>30<br>20<br>10<br>2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016<br>2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016<br><!-- End of picture text -->

## **B. S&P500: Balance of Risks**

<!-- Start of picture text --> Skewness<br>Current year Next year<br>Current year median Next year median<br>-0.6<br>-0.8<br>-1.0<br>-1.2<br>-1.4<br>2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016<br><!-- End of picture text -->

## **D. Term Spread: Balance of Risks**

<!-- Start of picture text --> Skewness<br>Current year Next year<br>Current year median Next year median<br>0.5<br>0.3<br>0.1<br>-0.1<br>-0.3<br>-0.5<br>-0.7<br>F. Oil Price: Balance of Risks<br>Skewness<br>Current year Next year<br>0.1 Current year median Next year median<br>0.0<br>-0.1<br>-0.2<br>-0.3<br>-0.4<br>-0.5<br>2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016<br>2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016<br><!-- End of picture text --> Sources: World Bank, Bloomberg, Consensus Economics.

Note: Gray areas represent the gobal financial crisis of 2008-09, the intensification of the Euro area debt cris in 2010 and 2012. A. The implied volatility of option prices on the S&P 500 is recovered using the Black-Scholes formula from 6- and 18-monthahead put and call option contracts. B. The skewness of option prices on the S&P 500 is approximated using (25 Delta put volatility-25 Delta call volatility)/50 Delta volatility where Delta stands for the degree to which an option is exposed to shifts in the price of the underlying asset. This skewness measure is scaled down by a factor of 3 to match the equivalent skewness parameter of the risk neutral density function (Mixon 2011). C.D. The degree of uncertainty (proxied by dispersion) and balance of risks (proxied by skewness) of current and next-year term spread forecasts are compiled from monthly surveys of professional forecasters .

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