![Risk.net](https://www.risk.net/sites/default/files/styles/print_logo/public/2018-09/print-logo.png?itok=1TpHrpuP)
Editor's letter
Investors in structured products have been buying some or other version of volatility from the minute they signed up; whether they have understood this is a different issue
Not to be outdone by the May effect, this August has revived the notion that when bankers in Europe take their holidays the financial markets are vulnerable to a rapid shakedown. In recent years, market volatility in May had been the greatest fear, but events last month put these early summer jitters into perspective.
But if you are involved in structured products why should you care? Your offering is generally capital protected and your options are usually built on an averaging technique that smoothes out the peaks and troughs over time. And, as a matter of course, your product offerings are created to ensure that they thrive when volatility knocks, if the timing is right.
The truth is that investors in structured products have been buying some or other version of volatility from the minute they signed up; whether they have understood this is a different issue. The initial enticement to buy a product is stirred, generally, by the sight of a graph showing an index which will be used as the basis for their decision-making. Often sidelined by the other benefits on offer, buyers have been happy so far to look at such illustrations without really questioning the degree of volatility they were subscribing to.
In an investigation of the effects of the credit crunch on equity-linked and credit-based structured products that we have carried out in this issue of the magazine, it would appear that those clever and busy structurers have yet to develop a product that is linked solely to volatility, although they are turning out volatility-related products by the dozen. For structured credit markets, the picture is rather bleak, as hopes for the development of a market for constant proportion debt obligation products are dashed by events in the broader financial markets. That said, bankers claim that structured products based on rates have fared better than might have first been expected, as the switch to steepeners continues.
There isn't an answer to the question of where the financial markets go next, and that has to mean that the almost secluded world of structured products also has to wait. Obviously, equity market sentiment will be the key driver, and surely more than the return from holiday of the beach Blackberry mob.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Foreign exchange
Natixis turns on the taps in flow trading
French bank boosts flow business, balancing structured solutions capabilities
Stemming the tide of rising FX settlement risk
As the trading of emerging markets currencies gathers pace and broader uncertainty sweeps across financial markets, CLS is exploring alternative services designed to mitigate settlement risk for the FX market
Power-reverse to the future: falling yen revs up PRDCs again
Pressure on Japanese unit sparks revival in power-reverse dual currency notes
Credit Suisse and Commerz latest banks to ditch hold times
Mizuho also confirms zero last look add-on but MUFG’s policy unclear on the controversial FX practice
Has Covid stopped the clocks on FX timestamp efforts?
Budget reallocation may not be the only factor stalling standardisation progress, say participants
EU benchmark drama set for cliffhanger end
Access to key FX rates due to be decided six months before potential cut-off
Banks rent ready-made algos for FX trading
NatWest, XTX Markets and others develop new outsourcing model for tech
Who killed FX volatility?
Beyond central bank policy, traders see a range of hidden structural factors at work