​Cliquets, Autocallables Drive Skew

One-year cliquets are currently accounting for around 60% of hedged equity indexed annuities amid a growth in the sector among U.S. insurers at a time when U.S. investors target appreciation and upside. This is subsequently forcing exotic desks to buy downside puts leading to short-term skew steepening in the S&P 500. Meanwhile, autocallable structured products issuance in Europe and Asia has led to exotic desks having to increasingly hedge more of their vega when spot rallies, according to Ramon Verastegui, head of flow strategy and solutions for the Americas at Société Générale.