No, not exactly. The client is short a put (usually with a knock-in barrier and frequently in a multi-asset form like a worst-of) and the note terminates if an upside trigger is touched. So it's hard to replicate using vanilla options and it requires some fancy modeling. FWIW, multiple exotics desks have blown up on the large autocallable positions.
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- Thread starter kimikaze88
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Not really just a covered call. What I mean is the type of hedging Callable Notes but with higher frequencies of balancing position.
Usually if we write a Phoenix/Phoenix Autocallable, downside trigger risk already diversified to the buyer. Hence, hedging will more focusing with Underlying and Bond position prior to market close. But in this case only trade with exchanges Futures and Options, I have to rebuild the dynamic hedging with higher frequencies to protect downside risk by giving up upside participation. This is part of the reason I am giving up a huge percentage of gain into trading cost to mitigate the risk of market exposure.
Sorry, you are confusing me. Are you simply reproducing an autocallable payoff? In that case, what is the advantage of giving you capital vs buying a note from SocGen or something like that? Or you are leveraging on the volatility flows that result from large autocallable positions, especially in Asia?
No, not exactly. The client is short a put (usually with a knock-in barrier and frequently in a multi-asset form like a worst-of) and the note terminates if an upside trigger is touched. So it's hard to replicate using vanilla options and it requires some fancy modeling. FWIW, multiple exotics desks have blown up on the large autocallable positions.
I don't really understand traderjo question. I thought he knows what an AutoCallable are. Yeah, it's hard to replicate using vanilla and required modelling. If static hedge, some people will replicate by using both Barrier and Digital.
Sorry, you are confusing me. Are you simply reproducing an autocallable payoff? In that case, what is the advantage of giving you capital vs buying a note from SocGen or something like that? Or you are leveraging on the volatility flows that result from large autocallable positions, especially in Asia?
Sorry, I don't really get your question. Do you mean I buy a notes? If that's the question, I don't buy notes and I don't have any autocallable positions. What I mean is my hedging techniques are similar to hedging a notes but in higher frequencies, which means I am the side of issuer instead of a buyer.
Note issuer risk are all about time or hedging errors, gain from daily market movement. In my situation when I only approach market with futures and options, my gain also come from daily market movement and biggest challenge are theta. I am more than happy to issue a note and I will never buy a note. Issuing a note can easily help me diversified all the downside risk to the buyer and approach market with huge advantage.
Issuer, of course. Natixis and SG most recently, if I recall correctly - it's all on longer-dated W/O index autocallable notes/swaps.Really? They are issuer or buyer?
Issuer, of course. Natixis and SG most recently, if I recall correctly - it's all on longer-dated W/O index autocallable notes/swaps.
Really? China are crazy now for buyer on Phoenix Autocallable.
Just noticed that.
https://www.bloomberg.com/news/arti...4-million-revenue-hit-from-asia-trading-hedge
No surprise. Korea are the power house of notes and options.
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Sorry, I was just trying to understand the structured product, .. to my limited knowledge it looked like as a buyer of a note all I was doing was doing Covered Call writing !Sorry, I don't really get your question. Do you mean I buy a notes? If that's the question, I don't buy notes and I don't have any autocallable positions. What I mean is my hedging techniques are similar to hedging a notes but in higher frequencies, which means I am the side of issuer instead of a buyer.
Note issuer risk are all about time or hedging errors, gain from daily market movement. In my situation when I only approach market with futures and options, my gain also come from daily market movement and biggest challenge are theta. I am more than happy to issue a note and I will never buy a note. Issuing a note can easily help me diversified all the downside risk to the buyer and approach market with huge advantage.
Sorry, I was just trying to understand the structured product, .. to my limited knowledge it looked like as a buyer of a note all I was doing was doing Covered Call writing !
No problem. Nope and you can't fully replicate using the common exchanges vanilla options if you are the issuer. Even pricing and evaluating need modelling to do so. You have certain observation date and terms for Knock In and Knock Out. Some coupon might pay up to 2.5% monthly depends on underlying and downside risk protection.
Not as an issuer, I was referring to as a investor, what is the diff between this and a CC?
with both there is limited upside participation and limited downside protection!
with own CC there is little counter party risk where as with these structured products the issuer is your counter party is it not?
( Both have the risk of the underlying going down big way)
so apples to apples and specially on exchanges where there are good Exchange Traded Options available , and no need to go to any OTC options!
with both there is limited upside participation and limited downside protection!
with own CC there is little counter party risk where as with these structured products the issuer is your counter party is it not?
( Both have the risk of the underlying going down big way)
so apples to apples and specially on exchanges where there are good Exchange Traded Options available , and no need to go to any OTC options!