Dealers have built substantial short correlation positions due to the huge issuance of long-correlation structured products in recent years.
Equity correlation remains one of the most important risks for structured product issuers, so such an increase in the use of correlation-transfer mechanisms seems prudent. But there are concerns over what would happen in a market downturn such as some fear is now looming.
Alan Zagury, head of risk management trading for equities exotics and hybrids at JP
The week on Risk.net, July 7-13, 2018Receive this by email