Alpha Exchange

After a 6 week hiatus during which I was recovering from a serious jet ski accident, I am excited to bring you a fresh episode of the Alpha Exchange.  And it was wonderful to spend time with Andrew Scott, a Partner and Head of Client Solutions at Bach Option.  Our conversation is an exploration into the complex factors that drive the clearing price for volatility in equity markets.  In this context, we spend no time on the economic cycle or corporate profits or the latest missive from the Fed.  Instead, Andrew explains how the vast industry of Asian structured products leaves banks with complex exposures to optionality, correlation and dividends.  These trades, designed to create income in countries like South Korean that have seen interest rates in secular decline, leave banks with substantial long vol positions.   Through our conversation, we learn of the concept of “peak vega”, an industry estimate for the level of the underlying index where bank’s are most long vega.  Andrew also lays out in great detail