Browsing: Derivatives

Posts Tagged ‘ Derivatives ’

Strategic Note: Improved Smile-Implied Hedging

Jan 21st, 2021 | Filed under: CAPM / Alpha Theory, Financial Economics Theory, Newly Added, Risk management, Risk Metrics and Measurement, Risk Management Strategies & Processes, Finance & Economics

A recent paper by two Canadian scholars looks to improve on the art of smile-implied option replication. Pascal Francois, of the HEC Montreal Department of Finance, and Lars Stentoft, of the University of Western Ontario, Department of Economics, begins with the observation that options can be dynamically replicated using model-freeRead More

The Often-Forgotten Art and Science of Manager Due Diligence

Jan 10th, 2021 | Filed under: Due Diligence Process, Newly Added, Risk Management & Operations

By Shana Sissel, CAIA – Chief Investment Officer of Spotlight Asset Group For almost two decades I have worked in roles that were heavily focused on investment manager due diligence across asset classes and legal structures. I began my career in due diligence-focused on the world of hedge funds. HedgeRead More

Restrictions on Pension Plan Investments: A Global Survey

Jul 16th, 2019 | Filed under: Derivatives, Newly Added, Institutional Investing, The Alts Industry, Institutional Asset Management, Hedge Funds, Commodities, Structured Products, Allocating to Alts

A new report from the Organization for Economic Cooperation and Development surveys the main quantitative investment restrictions to which pension funds and other pension providers are subject in both OECD countries and a selection of International Organization of Pension Supervisors’ (IOPS) member countries. It reminds us of the general desireRead More

Interest Rate Derivatives, Announcements and HFT: It’s All About Timing

May 23rd, 2019 | Filed under: Algorithmic and high-frequency trading, Newly Added, Credit Derivatives, The Alts Industry, Structured Credit Products, Structured Products

Three scholars associated with the University of Wollogong, Australia, recently published a paper on the contribution of high-frequency traders to the absorption of new information by the markets, especially in relation to the prices of interest rate derivatives. The study is the work of Alex Frino, Michael Garcia, and IvyRead More

A Proposed Model for VIX Derivatives Pricing

Feb 14th, 2019 | Filed under: Derivatives, Newly Added, The Alts Industry, Commodities, Structured Products

The VIX may be about to get some competition. VIX is the “fear gauge,” the very visible measure of expected price fluctuations in the S&P 500 index options. On the foundation of its popularity, CBOE has built a monopoly on exchange-traded volatility products. VIX derivatives have become among the mostRead More

Can LIBOR Be Replaced?

Feb 12th, 2019 | Filed under: Derivatives, Newly Added, Credit Derivatives, Economics, The Alts Industry, Macroeconomics, Structured Products, Finance & Economics

Given a long wave of scandals that lasted from 2008 until 2012, most of the derivatives industry, and most of its regulators, have agreed that the London Interbank Offered rate [Libor] ought to be replaced by a more tamper-resistant mechanism. Surely there must be an index that will measure theRead More

CEOs and the effect of education on use of convertible bonds

Nov 29th, 2018 | Filed under: Derivatives, Newly Added, Credit Derivatives, Equity-linked Structured Products, The Alts Industry, Structured Credit Products, Structured Products, Finance & Economics

Three scholars affiliated with the University of Manchester have  published a paper that reaches a striking view of corporate leadership and the decision to issue convertible bonds. Cynics have long suspected that Wall Street smart-alecks have roped the executives of corporations into issuing instruments that are contrary to the bestRead More

Hedging or Trading? Why Italian Banks Use Derivatives

Aug 23rd, 2018 | Filed under: Derivatives, Newly Added, Risk management, Credit Derivatives, The Global Economy & Currencies, Economics, The Alts Industry, Institutional Asset Management, Risk Management Strategies & Processes, Hedge Funds, Commodities, Risk Management & Operations

A recent report by the Bank of Italy looks at why the various banks of Italy use derivatives. Specifically, the central bank of that country wanted to know: is it a matter of hedging? Or is it a matter of keeping a proprietary book? Hedge fund managers and other pursuersRead More

Networks, Modeling, and Funds of Funds

Aug 8th, 2017 | Filed under: Financial Economics Theory, Newly Added, Alternative Investments in Context, The Alts Industry, Finance & Economics

Two scholars affiliated with FERI Trust, a leading investment manager of the German-speaking countries of Europe, have written a study of hedge fund strategies that uses a “network-based analysis” thereof. The two authors, Eduard Baitinger and Thomas Maier, argue that hedge fund strategies show “numerous network-based properties” which help explainRead More

The State of the OTC Index Dividend Swap Market

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

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

Headline vs. Core Inflation: We Shouldn’t Have Laughed

Aug 4th, 2016 | Filed under: Investing in Commodities, Newly Added, Hedge Funds, Commodities, Structure of the Hedge Funds Industry

I’m old enough to remember the 1970s, and to remember the economic debates in the United States at the time concerning the inflation of that era. The U.S. left the Bretton Woods system near the start of the decade, thus ushering the “free float” of currencies against one another inRead More

The SEC: Still Fiddling with a 1940 Era Carburetor 

May 3rd, 2016 | Filed under: Newly Added, Alternative Mutual Funds, Regulatory, Regulatory Environment, Liquid Alts, The Alts Industry, Liquid Alternative Investiments, Other Topics in Alts

Steven A. Keen of Perkins Coie has posted an insightful discussion of section 18 of the Investment Company Act of 1940, and of the pending proposed regulation under that mandate, Rule 18f-4, on one of that firm’s blogs, the Derivatives & Repo Report. Both that proposal and Keen’s observations areRead More

Brexit and Derivatives: Allen & Overy’s Views

May 1st, 2016 | Filed under: Due Diligence Process, Newly Added, Regulatory Environment, The Alts Industry, Risk Management & Operations

A decision by the United Kingdom to leave the European Union could be a bad thing for the derivatives markets. But from a legal standpoint there isn’t a lot that can be done about it in advance, and the existing Master Agreement for derivatives needs no change. Those are theRead 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

Usury Law: Not Too far From the Madden Crowd

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

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

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

How Not to Nationalize the Clearinghouses

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

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

Basel/IOSCO ‘Near Final’ Proposal: Part Two

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

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

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

Malaysian Derivatives Trading and Investor Memories

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

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

Credit Suisse: Making Fat Tails Work for You

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

The new normal, on Thambiah’s and Foscari’s account, includes an enhanced role by central banks, implementing monetary policies through open market operations, closer interconnections of banking institutions worldwide, much painful deleveraging, and persistently high levels of unemployment. Read More

Looking for Abnormal Market Activity

Apr 3rd, 2012 | Filed under: Algorithmic and high-frequency trading, Derivatives

Cinnober has sold a customized form of its Scila Surveillance software -- a product designed to detect abnormal market behavior -- to the Qatar Exchange. One of the purposes of Scila Surveillance is the detection of harmful variants of algorithmic trading, such as the trading "snipers" who drive off market makers and reduce liquidity. Read More