The spread between Libor and overnight index swap rates used to be negligible – until the crisis. Its behaviour since can be explained theoretically and empirically by a model driven by typical lenders’...
In this paper, Christian-Oliver Ewald, Roy Nawar and Tak Kuen Siu study the performance of locally risk-minimising hedging strategies in the context of futures and options written on crude oil. In contradiction...
This handy guide reviews the various steps banks are taking to improve their risk management techniques, looking at the benefits and pitfalls of each one.
More Technical papers articles
The benchmark stochastic alpha beta rho model for interest rate derivatives was designed for an environment of 5% base rates, but its traditional implementation method based on a lognormal volatility expansion breaks down in today’s low-rate and high-volatility...
The spread between Libor and overnight index swap rates used to be negligible – until the crisis. Its behaviour since can be explained theoretically and empirically by a model driven by typical lenders’ liquidity and typical borrowers’ credit risk....
Jürgen Vandenbroucke of the Faculty of Applied Economics at the University of Antwerp and KBC Asset Management elaborates on risk control applied to option-based capital-protected products and rules-based portfolio insurance. Vandenbroucke argues that...
Inflation models tend to be poor at capturing the high sensitivity of Limited Price Index (LPI) swap payoffs to year-on-year smiles and correlations, and consequently miss market quotes. Yann Ticot and Xavier Charvet propose a simple framework for pricing...
The value of early termination clauses in derivatives depends crucially on the type of close-out value used and on the counterparty risk, and embeds optionality in even the most vanilla swap contracts. In the case of the so-called risk-free close-out,...
Casual assumptions can be seductive – but wrong. An examination of what is sometimes taken for granted can yield surprising results, as a new article on collateral currency shows. Laurie Carver introduces this month’s technical section
Technology can provide a competitive advantage in banking. How it is applied by Tier 1 and Tier 2 institutions, to the benefit for their risk management systems, is discussed.
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