Last week, after the French election, the VIX plummeted and started its journey into the low-volatility regime again. Consequently, volatility selling strategy began gaining traction. However, FT.com published a warning Jim Keohane, the chief executive of the Healthcare of Ontario Pension Plan, compares selling volatility to picking up dimes in front of a steamroller. “You…Read More Why is Volatility so Low?
Two weeks ago, in a post entitled To Hedge or Not to Hedge, we argued that it’s always important for corporations to hedge the commodity prices and not to speculate. This post continues with more examples that highlight the importance of economic hedging. As oil price fluctuates, airlines can see their revenue vary widely. They…Read More More Examples as Why Hedging is Important
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 2015 and $2.7 billion in…Read More To Hedge or Not to Hedge
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?
After an increase in volatility, equity markets seem to be going back into the state of calmness. Additionally, with Easter coming up, volume and volatility are expected to remain low, at least for a couple of weeks. However, beside the equity world, the credit market is experiencing a tightening as well. The graph below shows…Read More Relationship Between Credit Default Swaps and Equity Options
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 session is scheduled with farmers…Read More Hedging Should be Based on Risks and Not on Forecasts
With the VIX being so low, many investors believe that now is the time to go long volatility. This belief mainly stems from the mean reversion property of the VIX. However, we should note that The speed of mean reversion in the low volatility regime is slower than it is in the high volatility one…Read More Should We Buy VIX Futures When The Spot VIX is Low?
At the close of today, the VIX finished at 11.23%, so on the surface everything seems to be calm and normal. However, the low VIX is making some investors nervous. Why is the VIX so low? In this post Dani Burger , Cecile Vannucci , and Liz McCormick cited some reasons for the low VIX: The…Read More Why Is VIX So Low and What To Do About It?
At the beginning of the year, as the markets reached new highs, investors became more complacent. Early this month, Rupert Hargreaves noted: Investors have plowed billions into stocks over the past few months while the generally positive sentiment within markets has helped pull central banks back into the shadows. Central bank decisions no longer have…Read More Now Is The Time to Hedge, But The Cost of Insurance Can Be Expensive
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?