Swiss franc losses blamed on liquidity gap
Options portfolios were impossible to delta-hedge, traders say
Bank losses from January's shock Swiss franc move were probably the result of banks being unable to delta-hedge US dollar/Swiss franc options books, according to traders and risk managers at four dealers. In a matter of 20 minutes, the rate fell 38%, but there was no liquidity for most of that period, traders say – ordinarily, a bank would hedge its delta exposure as spot moved towards sold strikes, but in this case it was impossible.
Citi and Deutsche Bank lost around $150 million on the move
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