The keynote speaker this morning for the 2nd Annual Risk Management Conference Asia was Rebecca Cheong who is Head of Americas Equity Derivatives Strategy for UBS Securities. She also grew up in Hong Kong so this was a special treat for her as well as the attendees.
Rebecca’s presentation was titled Cross-Asset Dislocations and Market Signal. She started out discussing the difference between a true Cross-Asset Dislocation and a Temporary Dislocation. A Temporary Dislocation is short lived and the gap in the market place is usually closed in a very short period of time. A longer term dislocation is referred to as a Structural Mispricing and she stated these sort of events may last for a longer period of time.
She turned the discussion to addressing market signals that may be discerned from volatility. A couple of examples of dislocations were if SPX options are cheap relative to individual stock option pricing or if it is inexpensive to hedge emerging markets as an asset class but is expensive to hedge individual countries.
A final point that Rebecca addressed in her presentation involved the impact of volatility oriented ETPs on the VIX futures markets. She noted that in cases of large moves in VIX futures there may be a further impact on the pricing as the ETPs are forced to rebalance at the end of the trading day.