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UBS Issues Volatility Certificates

07 Mar 2004

UBS has issued one of the first volatility certificates, allowing smaller investors to take views on volatility through the over-the-counter market and diversify their portfolio.

UBS has issued one of the first volatility certificates, allowing smaller investors to take views on volatility through the over-the-counter market and diversify their portfolio. The certificates, one on the Dow Jones Euro STOXX 50 and another on the Standard & Poor's 500 are effectively forward-starting straddles on the underlying, according to Claude Schmidt, equity structured products marketer in Zurich.

Volatility is generally inversely correlated to equity prices, which means the certificates can be used to add efficiency to a portfolio and as a means of diversification, said Schmidt.

The straddle premiums were 8.13% on the certificate with Euro STOXX as an underlying and 7.65% for Standard & Poor's.

07 Mar 2004