By using the GARCH model on historical data you can figure out what the variance is at this point in time. If it’s large, the portfolio curve gets pulled out; if it’s small, the portfolio curve gets pushed together. And the smaller it is, the less the value at risk.
We can see that between 2003 and 2006 volatility was quite low. It’s just as low as it was in the middle 90s. So, despite perceived risk, volatility isn’t showing it.
The red line is the S&P volatility; the green line is the VIX.