Autocallable issuance upsets Euro Stoxx volatility market

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

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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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