DERIVATIVES

Last year, in a post entitled Credit Derivatives-Is This Time Different we wrote about credit derivatives and their potential impact on the markets. Since then, they have started attracting more and more attention. For example, Bloomberg recently reported that collateralized loan obligations (CLO), a type of complex credit derivatives, are becoming a favorite financing vehicle…

Read More Are Collateralized Loan Obligations the New Debt Bombs?

The overnight index swap (OIS) has come into the spotlight recently, due to the widening of the Libor-OIS spread. For example, the Economist recently reported: WATCHING financial markets can be like watching a horror film. A character walks into the darkness alone. A floorboard creaks. The latest spooky sign is the spread between the three-month…

Read More Overnight Index Swap Discounting

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 will accelerate recognition of credit…

Read More How Will IFRS 9 Affect Financial Institutions?

Equity markets were relatively calm after the US election.  The recent weeks, however, have seen some increase in volatility. Is this just a blip or the start of a volatile period? Nobody knows the exact answer. But Gregory Meyer et al of FT.com reported that there are firms, notably DRW, based in Chicago,  that already…

Read More Hedging in the Mortgage Backed Securities Market Can Increase Volatilities

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 ?