Author: Harbourfront Technologies

To Hedge or Not to Hedge

Last week, Bloomberg presented a fascinating story about Mexico’s secretive oil hedging program. We noted that while it was designed as a hedge,  the Mexican government has made money consistently with it. If anything, recent results have made the Mexican government look especially good. The country earned $6.4 billion in …

How Will IFRS 9 Affect Financial Institutions?

In a previous post we discussed how IFRS 9 will affect commodity firms through hedge accounting programs. Generally speaking, as pointed out by Thack Brown in this post, IFRS 9 will affect financial and non-financial corporates through: 1-New classification and measurement principles for financial assets, 2- New impairment models that …

Hedging Should be Based on Risks and Not on Forecasts

A common belief among commodity producers, importers and exporters is that hedging should be based on analysts’ expectations.  Hence, they often attend meetings where they expect to hear forecasts from analysts and experts. For example, Ed White recently wrote Meeting halls at farm conferences are packed when the market analysis …

What Is a Contingent Convertible Bond and How to Price It ?

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 …

Do Derivative Accounting Rules Make Sense?

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 …