Sparking interest

Correlation trading

At the end of February a rumour began circulating around derivatives trading desks that Credit Suisse First Boston (CSFB) had managed to pull off a rare transaction by selling a bespoke option on equity index correlation to a hedge fund.

The benefits to a dealer of performing such a trade are obvious. Structured product makers are perennially short correlation because they sell so much of it to clients, wrapped up in products that reference more than one underlying. If a market existed for c

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