FINC6010 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.
The following video provides some background of this
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).
Be careful, VIX and XIV are different.
The consulting team may have no more than 6 student
members. One-member team is fine. Members may
come from different streams of FINC6010 course.
Due time for submitting the investigation report is:
The investigation report should be in a Questions/Answers
format, answering the questions raised by the
management team. The 8-page report should include
everything (don’t forget student IDs and student names)
the consulting team wants to report to the management
The report can use references, charts, tables, and
examples for explanation. The use of formulas and
calculations should be as simple/clear as possible.
The XIV product prospectus (pricing supplement) is
provided to the consulting team. Reading financial product
prospectus is the important training for fund managers,
financial analysts, and investment bankers.
The following website also hosts helpful information.
The questions asked by the management team are as
follows. 3 marks for question 12 and 2 marks each for
question 1 –11 (25 marks in total).
No further explanation on the questions will be
provided and we leave some flexibility for the
consulting teams to work on the answers. Good luck!
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
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 not
redeemed 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.
新文档 2019-10-13 21.50.01_20191013215313