Browsing: Structured Products

Structured Products

New Numbers on Catastrophe Bond Insurance

Jun 27th, 2017 | Filed under: Newly Added, Risk management, Risk Management & Operations, Structured Products

A new report from an Alternative Risk Transfer research service, Artemis, looks at the catastrophe bond and insurance-linked securities market in the (recor- breaking) first quarter of 2017. Bond and ILS issuance reached the unprecedented level of $2.76 billion this Q1. That involved 25 tranches of notes from 14 deals,Read More

The State of the OTC Index Dividend Swap Market

Feb 9th, 2017 | Filed under: Derivatives, Equity-linked Structured Products, Newly Added, Risk Management & Operations, Structured Products

In a new article in the Journal of Alternative Investments, Scott Mixon and Esen Onur quantify the over the counter index dividend swap market. Along the way, they provide a good example of the scientific method: positing a relationship, testing it against the data, and then abandoning it when theRead More

The Return Characteristics of Gold Mining Stocks

Jan 3rd, 2017 | Filed under: Commodities, Commodities: Examples, Equity-linked Structured Products, Gold, Investing in Commodities, Newly Added, Structured Products

Two Maryland-based scholars have reviewed the evidence of the performance of gold mining stocks. The title of their article, which appears in the Alternative Investment Analyst Review, November 2016, puts the central question bluntly: are such stocks “more like gold or like stocks”? Let’s get the answer to that queryRead More

Sovereign Credit Swaps: Europe’s Sovereigns and Regime Changes

Aug 16th, 2016 | Filed under: Allocating to A.I., Asset allocation, Asset Allocation Models, Credit Derivatives, Newly Added, Regulatory Environment, Structured Credit Products, Structured Products, The A.I. Industry

Andrea Consiglio and two of his colleagues have developed models for the management of risk in the sovereign credit swaps market, and they have successfully back tested these models against recent European history. Consiglio is a professor at the University of Palermo, in Italy. Sovereign CDS’ are contracts that offerRead More

A Short History of Life Settlements

Jan 27th, 2016 | Filed under: Newly Added, Structured Products

Andrew N. Smith, CAIA, interviews Doug Himmel of Melville Capital and Adam Meltzer of Vida Capital, both experts in the life settlement industry. Andrew: The reason why we’re getting together today is to talk about the life settlement market. Not a lot of people know about life settlements. So, with thatRead More

After Seven Years: Philosophical Implications of the Madoff Fraud

Dec 30th, 2015 | Filed under: Derivatives, Due Diligence Process, Equity-linked Structured Products, Newly Added, Operations, Personalities in AI, Risk Management & Operations

It has been seven years and a few days more now since Bernard Madoff acknowledged to authorities that “there is no innocent explanation” for the story they had just heard from his sons. It has been 15 and a half years since Harry Markopoulos ran the numbers regarding Madoff’s performanceRead More

A Fresh Look at Bubbles: Revising Assumptions

Sep 16th, 2015 | Filed under: CAPM / Alpha Theory, Derivatives

If it is possible for bubbles to arise in frictionless circumstances, then it follows that any theory that treats bubbles as the consequence of friction is, at very best, incomplete. And that is important to know especially if policy makers are busy drawing their own conclusions from those incomplete-or-worse theories. Read More

The LIBOR Fixing Scandal Gets a Conviction and a Book

Aug 9th, 2015 | Filed under: Currencies, Derivatives, Forex

When it all hit the fan, U.S. investigators in particular (the Brits somewhat less so) came to see Hayes as a mastermind behind its digestive generation. But Arvedlund seeks in her new book on the Libor Rigging scandal to place the role Hayes played in context. Read More

Overtrading and the Danger of Pro Rata

Jul 30th, 2015 | Filed under: Algorithmic and high-frequency trading, Commodities, Currencies, Derivatives, Forex

Guest columnist Ginger Szala looks at pro rata and what happens if...Read More

Usury Law: Not Too far From the Madden Crowd

Jul 7th, 2015 | Filed under: Derivatives, Legislation/Court rulings, Regulatory

National and international markets have long been accustomed to the fact that various states in the United States have their own usury laws. Still, litigation in the 2d Circuit, arising out of New York, may have a substantial impact on credit markets and their derivatives. Read More

Bitcoin and Kin: The View from Europe

Jul 1st, 2015 | Filed under: Currencies, Derivatives, Digital currencies

Bitcoin's price charts nowadays seem to have settled into an equilibrium between $240 and $220 per. But ESMA, and the authorities in Sweden, are both paying attention. Read More

Vindication for Pirrong and Irwin: Why Are Trafigura’s Profits Up?

Jun 22nd, 2015 | Filed under: Commodities, Derivatives, Indexes, Media Coverage of Hedge Funds

Trafigura has done quite well from the decline in crude oil prices in recent months. So well, in fact, as to throw a harsh light on a story that appeared in The New York Times in December 2013. Read More

Spoofing: The ‘It’ Enforcement Action

Jun 17th, 2015 | Filed under: Algorithmic and high-frequency trading, Derivatives, Hedge Fund Strategies, Regulatory, Technology

Spoofing is probably about as ubiquitous as texting-while-driving. And it is possible to make an example of a spoofer caught red-handed. But it isn't clear what purpose that will serve. The real problem is that a broken market contains a broken set of incentives. Read More

A Close Look at the Deutsche Bank Findings

Jun 10th, 2015 | Filed under: Derivatives, Risk management

Judy Collins might suggest looking at risk from ‘both sides now.’ But it appears that according to DB at a critical moment in global financial history, risk existed only to the extent that it worked to enhance the value of DB positions: it didn’t exist in any sense that might have required a haircut.Read More

Comparing SPM to Elliott: And Other Thoughts on MBS Funds

May 6th, 2015 | Filed under: Alpha Hunters, Alpha Seekers, Derivatives, Risk management

SPM "sticks out in [his] mind" as a successful manager with a "17 year track record" with returns in the mid 20s. "Where else are you going to get that?" Well, there is at least one other place that then comes to Brian Shapiro's thoughts: SPM's return compares to the return available from Elliott.Read More

Tavakoli on Death, an Industry’s Culture, and Decisions

Apr 29th, 2015 | Filed under: Derivatives, Risk management

Bill Broeksmit, with whom Tavakoli worked closely at the interest-rate swaps desk at Merrill Lynch in the late 1980s, killed himself in January 2014. The manner of this death, and the circumstances surrounding it, give this book even more gravitas than would a global financial crisis or two. Read More

Authorities Offer Revisionism About Flash Crash

Apr 22nd, 2015 | Filed under: Algorithmic and high-frequency trading, Derivatives, Indexes

Authorities now claim that the shenanigans that set off the flash crash of May 2010 were the work of Navinder Singh Sarao. Does this mean Waddell & Reed were unjustly maligned? Almost certainly. Read More

Eurelectric Speaks Up For Grushenka

Apr 16th, 2015 | Filed under: Derivatives, Regulatory, Risk management

Is it possible or desirable to separate "speculation" from operational hedging, so as to clear the way for industries to do the latter without the regulatory burdens that planners want to impose upon the former? Once Europe has decided that speculation is a bad thing, won't it end up pursuing the demon ways that will collapse the proposed distinction? Read More

Liquidity, Leverage and Those Nimble Hedge Funds

Apr 9th, 2015 | Filed under: Derivatives, Hedge Fund Strategies, Regulatory, Risk management

Basel III has given us three different statistics with a common goal, to keep banks to a stable funding profile, neither too illiquid nor too highly leveraged. As these requirements come on-line, what will be the consequences for the relationship between prime brokers and hedge fund managers? Read More

A Taylor-Swift Lawsuit: ‘I’ve Got a Blank Space Baby.’

Mar 26th, 2015 | Filed under: Algorithmic and high-frequency trading, Derivatives, Hedge Fund Strategies, Technology

This is the story of one high-frequency trading firm suing one or more others and giving detailed credence to everything that has been said over the last year or so by those who bemoan the rise of HFT firms. Read More

Intraday Momentum Confirmed: Day Traders Credited

Mar 24th, 2015 | Filed under: Behavioral finance, CAPM / Alpha Theory, Derivatives, ETFs

The first half-hour return of the S&P 500 ETF predicts the last half-hour return of the same trading day rather well. Why isn't this effect arbitraged away and a random walk restored? Read More

Most Investors Sanguine About Central Clearing Mandates

Mar 22nd, 2015 | Filed under: Derivatives, Hedge Fund Industry Trends, Regulatory

The international push to mandate central clearing has expanded the clearinghouses "well beyond levels the market has ever seen," Greenwich Associates reminds us in a new report. This is an experiment, and there remains some grounds for uncertainty about the outcome. Read More

On First Looking Into SEC’s Homer: A Final Rule on Swaps Reporting

Feb 23rd, 2015 | Filed under: Derivatives, Regulatory

Commenters successful pressed for certain changes in this massive new rule during its years of gestation. For example, the rule incorporates a T + 24 approach for the reporting of block trades. But warned, though, blizzards in NYC don't stop the ticking of that 24 hour clock. Read More

A Basis for Pursuing the Pursuers? Sonar-based Whale Hunts

Feb 17th, 2015 | Filed under: Algorithmic and high-frequency trading, Alpha Hunters, Derivatives, Institutional Investing, Regulatory

To the extent that high-frequency trading is analogized to 'insider trading,' it may be in trouble with securities regulators but still in the clear with commodities regulators. After all, the latter do allow hedgers to use non-public material information to protect themselves. But Gregory Scopino doesn't believe pinging and related HFT practices should be in the clear with the CFTC at all. Read More

The SEC Takes a Limited View of Janus’ Limited View

Dec 29th, 2014 | Filed under: Derivatives, Legislation/Court rulings, Regulatory

A December 15 opinion by the SEC limits the significance of a Supreme Court decision of three years ago, and so at least pending appeal it broadens the applicability of the basic anti-fraud rule 10b-5 to the employees of an investment adviser. Read More

Capital Markets, Derivatives and the Law

Nov 23rd, 2014 | Filed under: Derivatives, Legislation/Court rulings

Alan Rechtschaffen quotes two definitions of "moral hazard" in this book. The first, from Ben Bernanke, seems to get the book off to a rather awkward start. The second, from Zachary Gubler much later on, represents something of a recovery. Read More

Is Liability Insurance an Estate Asset in Bankruptcy?

Sep 16th, 2014 | Filed under: Derivatives, Insolvency, Legislation/Court rulings

The Manhattan bankruptcy court has now granted individual defendants in the MF Global matter, including Jon Corzine, access to funds from their D&O insurance. But it wasn't easy for them to get here, and therein lies our moral. Read More

SEC Adopts Changes to Regulation AB: More Transparency

Sep 3rd, 2014 | Filed under: Derivatives, Regulatory

The SEC's new rules for asset backed securities require asset level disclosures both at the time of offering and later, on an ongoing basis. The disclosures are required to appear in a standardized XML format.Read More

Clearing Obligation: ESMA Releases CP Comments

Aug 26th, 2014 | Filed under: Derivatives, Regulatory

The clearing-for-everything parade continues. Christopher Faille reviews three representative comments among those just released by ESMA, elicited by its consultation paper on the new clearing obligation for interest-rate swaps. Read More

How Not to Nationalize the Clearinghouses

Aug 17th, 2014 | Filed under: Derivatives, Insolvency, Risk management

Let's not make clearinghouses too big to fail. Or if, through, Dodd-Frank, we already have, let's turn back and reconsider that decision. That's how not to end up bailing them out or nationalizing them in due course. Read More

Eurex Clearing and DB Group: New Paper on CCPs

Jul 29th, 2014 | Filed under: Derivatives, Regulatory, Risk management

If such institutions as the ECB keep rewarding indebtedness, then over time they get their way. They'll get a lot of deal making, even if it amounts to a frenzy. Then investors will demand funds that play to that frenzy. Read More

Winner Takes All, and Liquidity Takers Win

Jul 22nd, 2014 | Filed under: Algorithmic and high-frequency trading, CAPM / Alpha Theory, Derivatives

It does appear that speed is helpful in generating alpha. How is it helpful? Here there are two views, and the less HFT-friendly of these views has received some scholarly/empirical support. Read More

Does a Firm Insist on Historical Cost Accounting? Short!

Jun 23rd, 2014 | Filed under: Alpha Strategies, Derivatives

"Isn't there anything good to be said for the practice of historical cost accounting, especially when the cost figures are higher than the mark-to-market figures? Well ... no. It's reality avoidance."Read More

MiFID Implementation Consultation: A Rocky Start

May 28th, 2014 | Filed under: Algorithmic and high-frequency trading, Derivatives, Regulatory

ESMA defines HFT as “a special class of algorithmic trading in which computers make decisions to initiate orders based on information that is received electronically, before human traders are capable of processing the information they observe and of taking a decision in relation thereto.” It then decides that needs further definition.Read More

The Wind and the Leaves: Causality in Commodity Prices

Jun 5th, 2013 | Filed under: Commodities, CTA, Derivatives, Hedge Fund Industry Trends

Three scholars find a very real possibility that there is a cause and effect relationship between index flows in the derivatives markets, at least the agricultural index markets, on the one hand and price moves in the underlying commodity on the other. Read More

CFTC Approves New Swaps Rules: Uses Some Old Jargon

May 22nd, 2013 | Filed under: Derivatives, Regulatory

Under the Dodd-Frank Act, and the implementing rules now approved by the CFTC, trades that aren't "large notional swaps" are to be reported more rapidly and thoroughly than those that are. This of course makes the definition of a large notional swap (a/k/a a block trade) an important matter.Read More

The Extraterritorial Effect of Swaps Rules

May 13th, 2013 | Filed under: Derivatives

A new SEC proposal, promulgated May 1, would provide that Dodd-Frank requirements regarding swaps apply if a transaction is entered into by a U.S. person or conducted within the U.S. but that an entity operating outside the U.S. may be able to substitute foreign regulatory requirements for the U.S. requirements if the extraterritorial party's home system produces comparable regulatory outcomes.Read More

Stop the Presses: IOSCO Calls for Balancing and Monitoring

Apr 4th, 2013 | Filed under: Derivatives, Regulatory

IOSCO's new draft report says that regulators ought to do a lot of "monitoring" of the consequences of changes in market structure. A little less predictably: it goes into some detail on the diversity of regulatory systems that bear on the question of fragmentation. Read More

ISDA & EDHEC Respond to Benchmarks Paper

Mar 26th, 2013 | Filed under: Derivatives, Retail Investing

The benchmarking consultation paper from ESMA/EBA has produced intriguing responses from, among others, the International Swaps and Derivatives Association and the EDHEC-Risk Institute.Read More

A Rebel Speaks Against the Hub-and-Spoke World

Mar 17th, 2013 | Filed under: Derivatives

Just as one buys bourbon from a retailer who buys it from a distributor who buys it from the manufacturer, so in the world of stocks someone desiring a share of Apple will call a broker who will often go through an exchange which matches him with the broker for a seller. But in a networked world, one can disintermediate. Read More

Lehman: Don’t Blame Canada: Blame Iksil!

Mar 4th, 2013 | Filed under: Derivatives, Regulatory

Lehman's adversary proceeding may yet raise the important issues of risk management that arise out of the relationships among the major Wall Street players at times of crisis. But the latest 'Blame the whale' request by the bankruptcy lawyers involved is a blatant distraction and diversion. Read More

Basel/IOSCO ‘Near Final’ Proposal: Part Two

Mar 3rd, 2013 | Filed under: Derivatives, Forex, Regulatory

This is the second of a two-part discussion of a paper jointly issued by Basel and IOSCO on margin requirements for non-centrally cleared derivatives. The new paper solicits feedback on the phase-in timeline it proposes, a phase-in designed to provide flexibility so the affected markets can meet "operational and logistical challenges" by which they might otherwise be stymied. Read More

Basel/IOSCO ‘Near Final’ Proposal: Part One

Feb 28th, 2013 | Filed under: Derivatives, Regulatory

This is the first of a two-part discussion of a paper jointly issued by Basel and IOSCO on margin requirements for non-centrally cleared derivatives. The new paper solicits feedback on only four still-open issues, and the list of issues itself illustrates the near finality they claim for this paper.Read More

The Superstition of Mean Reversion: JPMorgan Edition

Jan 23rd, 2013 | Filed under: Derivatives

Think of betting on black or red at the roulette table. If red comes up a lot, some people will be tempted to start putting all their chips on black. Read More

The Collateral Crunch: Confusion and some Relief

Jan 21st, 2013 | Filed under: Derivatives

As one authority puts it, 'the tectonic plates are shifting' in the world of derivatives exchanges and clearing. How can institutions keep their balance during the earthquakes? The Basel Committee may just have offered some help. Read More

Buy Side PMs Must Plan for Collateral Crunch

Dec 19th, 2012 | Filed under: Derivatives

As the reforms come on line, or as the asset management industry makes its adjustments in anticipation thereof, the initial margin requirements will be a big hurdle, in part because CCPs are quite restrictive about what assets are eligible as collateral. This may set the industry up for a collateral crunch. Read More

Vol Derivatives: Robust Benefits for European Equities Portfolios

Jul 2nd, 2012 | Filed under: Derivatives

A number of U.S. centered studies before this, such as one by Robert Daigler and Laura Rossi in 2006, had found that adding a long volatility position to an underlying equity portfolio has a significant diversification effect. But the authors of the new EDHEC paper wanted to determine whether the same benefits can be found in European data. Read More

Malaysian Derivatives Trading and Investor Memories

Jun 25th, 2012 | Filed under: Alpha Strategies, Derivatives

In a presentation about Malaysian derivatives trading, the issue of capital controls, and memories of the late 1990s, briefly came to the fore. Assume that a foreign investor considers Malaysia a promising place to invest. Will this investor be confident that if he does so he’ll be in a position to repatriate at his own choosing?Read More

Banks Aren’t Really Much Like Dominoes

Jun 20th, 2012 | Filed under: Derivatives

As a recent paper from four scholars at the Universidad de Santiago de Compostela, in Spain, observes, the extra flexibility risk managers gain from using credit derivatives comes with drawbacks. Perhaps the most obvious of drawbacks is that it creates counter-party risk. Still, the authors: Luis Otero González, Luis Ignacio Rodriguez Gil, Sara Cantorna Agra, and Pablo Durán Santomil, have written “Banking Risk and Credit Derivatives,” in order to take an empirical look at the balance of pros and cons. Read More

IOSCO and the Distance from Pittsburgh

Jun 19th, 2012 | Filed under: Derivatives, Regulatory

IOSCO, the international policy body for securities regulators, has this month published its own final report on international standards for the regulation of derivatives market intermediaries. This continues a course followed by international bodies ever since the G20 summit: the drift away from the grand idea of treating all derivatives in a standardized way, toward acceptance of the unharnessed character of the OTC world, though for all that a renewed insistence on regulating the particulars.Read More