Odd Lots Here’s What’s Happening With Those Korean Structured Notes That Bet Against Market Volatility
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Apr 9, 2020 
Benn Eifert, CIO and founder of QVR Advisors, dives into the intriguing world of Korean structured notes and their performance in volatile markets. He unpacks how these investment products, designed for stability, have been severely impacted by recent market crashes. The discussion also covers banks' evolving risk management since the 2008 crisis, the failures of hedge funds to navigate volatility, and the ongoing challenges posed by over-leveraged assets. Join them as they speculate on the future of the financial landscape and regulatory impacts.
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Korean Structured Products
- In January, Odd Lots discussed Korean structured products tied to market indices.
- These products promised payouts based on the premise of no major market crash.
Structured Product Mechanics
- Korean retail investors use structured products, like reverse autocallable notes, to get fixed income from equities.
- Investors earn a coupon unless an underlying index drops significantly, triggering a loss.
Bank Risk Management
- Banks hedge structured product risk initially by selling deep out-of-the-money puts.
- As markets decline, banks' hedged portfolios become longer volatility due to the nature of barrier options.