Derivative Securities Assignment
The VelocityShares Daily Inverse VIX Short-Term exchange-traded note (XIV) was down more than 80 percent on Monday, Feb 5 2018. The security, issued by Credit Suisse, was supposed to give the opposite return of the Cboe Volatility index (VIX), the market’s widely followed risk measure.
In 2019, Credit Suisse plans to hire an external consulting team, with student members from University of Sydney’s FINC6010 course, to investigate the meltdown of XIV ETNs (exchange-traded notes).
1.What is volatility?What does VIX index (Cboe Volatility Index) measure?
2.How to construct VIX index?
3.How VIX index was constructed previously (before September 2003)?
4.How do VIX futures contracts work?
5.How do VIX options work?
6.How to use VIX futures or VIX options to bet against VIX index (bet that VIX index will go down)?
7.Now consider XIV ETNs (exchange traded notes).What is the underlying asset (index) that XIV tracks?
8.When will the XIV ETNs mature if they are notredeemed or accelerated?
9.What is early redemption for XIV ETNs? Who has the early redemption right?
10. What is the acceleration event for XIV ETNs?
11. Was XIV meltdown in Feb, 2018 associated to an acceleration event? If yes/no, provide some details.
12. Are XIV ETNs suitable for long-term investors who want to hold XIV ETNs to maturity? Why? On Feb 5, 2018, did Credit Suisse suffer huge losses on XIV meltdown?Provide your reasoning.
