Mid-cap emerges

The once dormant European mid-cap equity derivatives market has sprung into life thanks to investors seeking to hedge their cash positions. While many banks are happy to make a market in mid-caps, they are faced with some sticky risk management challenges. Rachel Wolcott reports

European mid-cap equity derivatives haven't traditionally held much allure for investors. Over the past nine months, however, these instruments have begun to emerge from obscurity. The catalyst was the spike in equity volatility in May and June last year, which exposed the potentially dangerous basis risk of hedging large cash positions in European small- and mid-cap stocks with large-cap options. Keen to hedge their mid-cap exposures more precisely, investors have been piling into the market.

Ma