About a year ago, the financial world witnessed another “Lehman moment”. It was the “near collapse” of Deutsche Bank (DB). The financial press quickly pointed out the main reason for DB’s plunging stock price. John Glover wrote Yield-starved investors bought $102 billion of the contingent convertible bonds, securities created to help troubled banks hang onto…Read More What Is a Contingent Convertible Bond and How to Price It ?
As a firm with emphasis on risk management, we always advise our clients to hedge their portfolios in order to reduce the PnL volatilities. However, recently Metlife, the largest insurer in the US, was hit by a $3.2 billion loss in derivatives that were used to hedge the rising interest rates, causing a $2.1 billion…Read More Do Derivative Accounting Rules Make Sense?
A convertible bond (or preferred share) is a hybrid security, part debt and part equity. Its valuation is derived from both the level of interest rates and the price of the underlying equity. Several modeling approaches are available to value these complex hybrid securities such as Binomial Tree, Partial Differential Equation and Monte Carlo simulation.…Read More Derivative Valuation-How to Price a Convertible Bond
Less than a year from now, the banks will have to introduce the IFRS 9 Impairment, and it will have a substantial financial impact on them. However, it is not just banks that will be affected by this new accounting standard, non-financial corporations, for example commodity firms, will be impacted as well. The Treasurers Wiki…Read More Will IFRS 9 Help Commodity Firms Better Manage Risks?