Souli says the approach could be applied widely across derivatives markets: “Anything that embeds a vol target and anything that embeds a gap risk related to close-to-close rebalancing can be enhanced through fast convergence technology. It opens up a wide scope of usage.”
Volatility conundrum
Since the Vix-plosion of February 2018, when the US volatility benchmark made its highest one-day gain in history, there has been no shortage of attempts to reimagine the short volatility carry trade. Here, BofA was again able to show off its structuring smarts, as the dealer created one of the fastest-growing.
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