Curbing dispersion exposure

Dispersion tactics

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Dispersion has proved to be disastrous for equity derivatives dealers in the past. Before the crisis, banks loaded up with short single-stock variance exposures as part of dispersion packages put on with hedge funds – positions that led to massive losses when volatility surged and liquidity dried up in the listed options market after the collapse of Lehman Brothers in September 2008. Response from the market was swift: some shut down dispersion desks altogether, while others stopped quo