Autocall hedging set to push Euro Stoxx volatility higher

Rising index likely to trigger increased volatility, say dealers

Banks braced for volatility after Euro Stoxx rally
Banks are braced for volatility after a rally in the European benchmark index

After being range bound since January 2016, the Euro Stoxx 50 index finally broke out at the end of last year. While some bank equity traders may welcome the influx of new interest from clients, equities desks are bracing for a spike in volatility coming from dealer hedging of popular structured products linked to the index – a situation that in the past has led to losses across the Street.

Banks say they’ve learnt their lessons from past episodes, and now have alternative risk-recycling method