Entering calmer waters

Equity

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While volatility in Asian equities has eased off in recent weeks, effects of the sell-down in the second quarter continue to be felt in the derivatives industry. For one, the spike in implied volatility in May and June is believed to have caused several US-based and Japan-focused hedge funds to suffer big losses from variance and dispersion trades. Nonetheless, other hedge funds profited handsomely from the equity turbulence.

Restructuring activity in the structured products market has also picked up on the back of the volatility spike. Bankers say they have been getting requests from clients to restructure some of the autocallable worst-of equity-linked notes that have effectively turned into zero-coupon notes with the drop in stock values in May.

One theme that has emerged in the equity derivatives space is that restructuring has now become an essential part of the after-sales service. Market players believe this will be the next big test of dealers' ability to offer secondary liquidity - and innovative and practical solutions - under changing market conditions.

  • Hedge funds
    After the storm
    Some hedge funds were on the wrong side of volatility trades during the recent fall in Asian equity markets. How is the sector coping?

  • Restructuring
    Picking up the pieces
    Recent market volatility in Asia has left investors seeking to restructure equity-linked notes, following mark-to-market losses

  • Australia
    Providing cover from volatility
    How are banks in Australia taking advantage of volatility when structuring products?

  • Profile: Deutsche Bank
    A new lease of life
    Deutsche Bank has been aggressively ramping up its institutional equity derivatives business

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