Structured Products
Structured Finance: Unleash the Inefficiency
Nov 29th, 2020 | Filed under: Derivatives, CDO Structuring and Credit RIsk, Newly Added, Credit Derivatives, CAIA Alternative Viewpoints, Structured Credit Products, Structured Products
By Shreekant Daga, CAIA, CFA, FRM What is structured finance? Finance has several theoretical traditional and modern frameworks in practice. Needless to say, often the frameworks have conflicting assumptions. The sub-prime mortgage crisis is a modern classic example. Data-reliant credit rating agencies (CRAs) had not seen such a large drawdownRead More
Introduction to Insurance-Linked Securities
Oct 5th, 2020 | Filed under: Newly Added, Credit Derivatives, Structured Credit Products, Structured Products, Other Topics in A.I.
By Chin Liu, Director of Insurance Linked Securities and Quantitative Research, Portfolio Manager; Campbell Brown, Portfolio Manager; and Joe Morgart, Client Portfolio Manager, at Amundi Pioneer Insurance-linked securities (ILS) is an alternative asset class offering investors the potential for attractive risk-adjusted returns and desirable diversification1 benefits. This overview describes aRead More
A CLO-ser look at structured products
Jul 12th, 2020 | Filed under: Derivatives, Newly Added, Credit Derivatives, Structured Credit Products, Structured Products
By Robert Hoffman, Managing Director, Investment Research and Kara O’Halloran, Associate, Investment Research, FS Investments Structured products are no stranger to the limelight. Once only garnering interest from niche Wall Street trading floors, collateralized debt obligations (CDOs) and mortgage-backed securities (MBS) have become household names, as these products were cited asRead More
CRE Debt & the Downturn: What’s Next?
Jun 23rd, 2020 | Filed under: Derivatives, Newly Added, Credit Derivatives, Alternative Investments in Context, Structured Products, Other Topics in A.I.By Matt Malone, Managing Director, Real Estate and Andrew Korz, Associate, Investment Research, FS Investments As the COVID-19 pandemic has swept across the world, it has become clear that the necessary steps being taken by governments to protect human life have thrust the global economy into a recession. In theRead More
Funding a Covid ‘Long Shot’
Apr 2nd, 2020 | Filed under: Newly Added, Venture capital, CAIA Alternative Viewpoints, Other Issues in Private Investments, Structured Credit Products, Private Investments, Structured ProductsEvery venture exists to solve a problem. Since the dawn of the Covid-19 pandemic, pharmaceutical companies and investors have been scrambling to solve what has quickly become one of the biggest problems in modern history. But as the Financial Times observed earlier this month: “For most biotechs, success will beRead More
The Perils of Late-Cycle Investing
Feb 11th, 2020 | Filed under: Hedge Fund Industry Trends, Private Equity, Debt Types of Private Equity, Newly Added, Equity Types of Private Equity, Credit Derivatives, Other Issues in Private Investments, Alternative Investments in Context, The A.I. Industry, Structured Credit Products, Hedge Funds, Private Investments, Structured ProductsIt is widely believed that much of the world is now experiencing the late stages of a bull market. There will be a downturn because no tree grows to the sky. Forecasting the nature and severity of the coming downturn is tricky, but perhaps that is not the right question.Read More
Greenfields and Brownfields: Asian Investors Backing Infrastructure Investments
Dec 22nd, 2019 | Filed under: Infrastructure, Debt Types of Private Equity, Newly Added, Credit Derivatives, Other Issues in Private Investments, Operationally Intensive Real Assets, The A.I. Industry, Structured Credit Products, Private Investments, Real Assets, Structured ProductsThe Asian Infrastructure Investment Bank has taken a 30% stake in Bayfront Infrastructure Management. Clifford Capital, with the backing of the government of Singapore, has the other 70%. They have created Bayfront (with a combined capitalization of $180 million) to mobilize a pool of infrastructure investors in the expectation thatRead More
Bitcoin Derivatives Behaving Just Like Other Underlying Assets
Oct 15th, 2019 | Filed under: Derivatives, Newly Added, The Global Economy & Currencies, Digital currencies, Other Issues in Private Investments, The A.I. Industry, Risk Management Strategies & Processes, Frontier markets, Structured Products, Other Topics in A.I.Bitcoin derivatives act a lot like the derivatives of other asset classes. Two scholars at the University of London recently looked at bitcoin’s “volatility smiles and skews” as found in the short and long dated maturity of options traded at the Deribit Exchange in 2019. Helyette Geman and Henry Price,Read More
Goldman Sachs Puts Stop-loss on Options
Oct 1st, 2019 | Filed under: Newly Added, Risk management, The A.I. Industry, Risk Management Strategies & Processes, Structured ProductsGoldman Sachs threw in the towel two years ago. Well, “a towel,” anyway. Goldman has lots of towels. But two years ago, Goldman gave up on market making at the US options exchanges. In time for the anniversary, Alphacution has posted a research paper on the “long arc” of optionsRead More
Four Lessons from the Sale of Refinitiv
Aug 12th, 2019 | Filed under: Newly Added, Other Issues in Private Investments, The A.I. Industry, Structured ProductsLess than a year ago, Thomson Reuters sold a majority interest in its financial and risk product portfolio, a critical part of that corporate domain, to a consortium led by Blackstone, in a deal that valued the assets, now renamed “Refinitiv,” at $20 billion. In April of this year, thatRead More
Restrictions on Pension Plan Investments: A Global Survey
Jul 16th, 2019 | Filed under: Derivatives, Newly Added, Institutional Investing, The A.I. Industry, Institutional Asset Management, Hedge Funds, Commodities, Structured Products, Allocating to A.I.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
The Value of Speculation Limits, or Lack Thereof
Jun 18th, 2019 | Filed under: Commodities, Derivatives, Newly Added, Commodity Forward Pricing, The A.I. Industry, CommoditiesCFTC Commissioner Daniel Berkovitz recently spoke to the FIA Commodities Symposium, in Houston, Texas, about the reduction of systemic risks and the strengthening of market integrity under the Dodd-Frank Act. He gave the usual disclaimer, that the views he expressed in this address were his own not those of theRead More
Trade Tensions, Tariffs and European Volatility
May 30th, 2019 | Filed under: Derivatives, Newly Added, The Global Economy & Currencies, Business News, Economics, The A.I. Industry, Macroeconomics, Finance & EconomicsBy Mark Shore As the discussions of trade wars and tariffs persisted throughout 2018 and into 2019, it may have influenced a sense of uncertainty in the global financial and commodity markets as companies might have to rethink their supply chains and manage potential disruptions and at least in theRead 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 A.I. Industry, Structured Credit Products, Structured ProductsThree 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
Caveat Emptor: Leveraged Loans and the Credit Cycle
May 19th, 2019 | Filed under: Debt Types of Private Equity, Newly Added, Credit Derivatives, The A.I. Industry, Hedge Funds, Private Investments, Structured ProductsAllianceBernstein, the Nashville-based, asset management firm released a white paper on high-yield bank loans. Buying these loans seems, to some investors, a fix for the ongoing low-interest-rate environment. But the white paper is a warning. In two words, “buyer beware.” The paper is the work of Douglas J. Peebles andRead More
Corporate Distress and Its Derivatives
Mar 31st, 2019 | Filed under: Derivatives, CDO Structuring and Credit RIsk, Newly Added, Event-Driven Hedge Funds, Credit Derivatives, The A.I. Industry, Structured Credit Products, Hedge Funds, Structured ProductsHenry T.C. Hu, of the University of Texas at Austin, School of Law, has written an article on the “information asymmetries” that are associated with corporations that are in financial distress, but not under bankruptcy court protection. It is an article that sends us back to the Christmas selling seasonRead More
A Proposed Model for VIX Derivatives Pricing
Feb 14th, 2019 | Filed under: Derivatives, Newly Added, The A.I. Industry, Commodities, Structured ProductsThe 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 A.I. Industry, Macroeconomics, Structured Products, Finance & EconomicsGiven 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 A.I. Industry, Structured Credit Products, Structured Products, Finance & EconomicsThree 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 A.I. Industry, Institutional Asset Management, Risk Management Strategies & Processes, Hedge Funds, Commodities, Risk Management & OperationsA 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
The Irrelevance of Dodd-Frank & Memories of the Crisis
May 28th, 2018 | Filed under: Newly Added, Credit Derivatives, Risk Management Strategies & Processes, Structured Credit Products, Structured Products, Risk Management & OperationsThere has been some political excitement of late concerning the repeal of part of the Dodd-Frank statute, which was the great post-crisis reform bill that sought to remake the financial regulatory system in the United States. On Thursday, May 24, President Trump signed a bill that exempts dozens of banksRead More
WisdomTree on the Success of its Rate-Hedge Agg Suite
Apr 26th, 2018 | Filed under: Newly Added, Structured Credit Products, Structured ProductsThe path to higher rates has not been a smooth one, but interest rates in the United States are now higher than they have been since the global financial crisis and they may well become higher than they are now. What should traders or investors do about this? How toRead More
Barnes on Swaps Transparency under MiFID II
Sep 19th, 2017 | Filed under: Investing in Commodities, Newly Added, Operations, Commodities, Structured Products, Risk Management & OperationsA recent blog in the TABB Forum, by Chris Barnes of Clarus Financial Technology, looks at recent developments in the realm of MiFID, and looks forward. The UK’s Financial Conduct Authority in August of this year authorized certain Approved Publication Arrangements (APAs) for reporting under MiFID II. The authorization ofRead More
New Numbers on Catastrophe Bond Insurance
Jun 27th, 2017 | Filed under: Newly Added, Risk management, Structured Products, Risk Management & OperationsA 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, Newly Added, Equity-linked Structured Products, Structured Products, Risk Management & OperationsIn 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: Investing in Commodities, Newly Added, Equity-linked Structured Products, Commodities: Examples, Gold, Commodities, Structured ProductsTwo 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: Newly Added, Asset allocation, Regulatory Environment, Credit Derivatives, Asset Allocation Models, The A.I. Industry, Structured Credit Products, Structured Products, Allocating to A.I.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 ProductsAndrew 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, Newly Added, Operations, Equity-linked Structured Products, Personalities in AI, Risk Management & OperationsIt 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, DerivativesIf 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, ForexWhen 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: Commodities, Algorithmic and high-frequency trading, Currencies, Derivatives, ForexGuest 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, Regulatory, Legislation/Court rulingsNational 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 currenciesBitcoin'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, Media Coverage of Hedge Funds, IndexesTrafigura 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, Hedge Fund Strategies, Derivatives, Regulatory, TechnologySpoofing 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 managementJudy 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: Derivatives, Alpha Hunters, Risk management, Alpha SeekersSPM "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 managementBill 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, IndexesAuthorities 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, Risk management, RegulatoryIs 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: Hedge Fund Strategies, Derivatives, Risk management, RegulatoryBasel 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, Hedge Fund Strategies, Derivatives, TechnologyThis 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: CAPM / Alpha Theory, Derivatives, Behavioral finance, ETFsThe 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: Hedge Fund Industry Trends, Derivatives, RegulatoryThe 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, RegulatoryCommenters 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, Derivatives, Institutional Investing, Alpha Hunters, RegulatoryTo 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, Regulatory, Legislation/Court rulingsA 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 rulingsAlan 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 rulingsThe 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