Autocallable issuance upsets Euro Stoxx volatility market

Frenzied issuance on European indexes stacks up vega risk for dealers as natural hedge suffers

Dislocations in Euro Stoxx implied volatility

At the start of the eurozone's growth wobble last year, when the Euro Stoxx 50 index fell by almost 2% on October 7, equity derivatives traders noticed something odd. Three-year fixed-strike implied volatility, instead of rising as spot plummeted, actually fell to a touch under 20% - highly unusual for a daily equity decline of that magnitude.

A week later, exotics desks found popular relative value trades, such as a long Euro Stoxx/short S&P 500 volatility pairing, were transacting at all-time

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