This article looks at how these indices are built, how they differ from real indices and the potential consequences for the investors and for the banks.
For investors looking for yield, autocallables on indices have been a blockbuster for years. The principle of the autocallable payout is simple: the investor gets coupons that are substantially higher than the prevailing interest rates but they put their capital at risk. On each annual observation date, the payment of those coupons is subject to the equity index being above a predetermined level. At maturity if the equity index is above a barrier (typically fixed at 60% or 70% initial level), th