Risk magazine - Volume 22/Number 11
Articles in this issue
Sponsored statement: Inflation derivatives – history in the making
It has been a roller-coaster ride of a year for inflation-linked products – thanks to the global economic problems that everybody has been encountering, the collapse of Lehman Brothers and the use of quantitative easing by central banks – in their…
Fudge or fix?
Barclays announced in September it had sold $12.3 billion of credit assets to a newly established fund called Protium Finance. The acquisition was largely financed by a loan from Barclays, meaning the bank has insulated itself against further mark-to…
No accounting for leverage
The Basel Committee is set to unveil proposals for a leverage ratio in December as a means of constraining the excessive growth of bank balance sheets. But risk managers warn the proposals risk creating an unlevel playing field between US and European…
Crowd busting
The financial crisis revealed most dealers had near-identical exposures in exotic derivatives markets – whether in credit, interest rates, equity or inflation – leaving them unable to exit or hedge their positions when markets tanked. How have traders…
Moral hazards for CCPs
Derivatives practitioners fear the political push for central clearing of standardised contracts could create a moral hazard, as clearing platforms might compromise their risk management standards to create a more competitive service. How are regulators…
Taking time to settle
Regulators have looked to eliminate any gaping holes in risk management since the onset of the financial crisis. But with the focus firmly on counterparty credit risk, has settlement risk fallen off the radar? By Alexander Campbell
Stuck in the muddle
Regulators in the US and Europe are making efforts to extend central clearing to all asset classes. However, dealers argue that central clearing does not make sense for foreign exchange. By Alastair Marsh
An inspector calls
Since his appointment last December, Tarp inspector Neil Barofsky has conducted a range of audits and investigations into sensitive issues – most recently condemning the US Treasury’s oversight of AIG’s compensation policies. He speaks to Mark Pengelly…
Profits of doom
An analyst at JP Morgan has predicted recent changes to derivatives regulations could drastically cut return on equity at investment banks. Will banks look to exit certain business lines with less attractive risk-adjusted returns as a result? Duncan Wood…
Being stressed is good for you
Increased regulatory focus means stress testing can no longer play a minor role in banks’ strategic thinking and capital considerations. Many institutions require cultural and procedural change to make this happen, but are they capable of bringing it…
The asset swap lifeline
The financial crisis created a major dislocation between inflation-linked and nominal government bonds, resulting in a huge opportunity for investors to benefit through asset swaps. How did banks and their clients respond to this? By Peter Madigan
Opportunity knocked
Tricky market conditions in inflation volatility, exacerbated by dealers’ structural hedging activity around 0% year-on-year inflation floors, have created a market rife with opportunities. But few clients are taking advantage. Mark Pengelly reports
Corporate concessions
Corporates have argued initiatives to introduce over-the-counter derivatives regulation in the US and Europe will severely hamper their ability to hedge. After an intensive lobbying effort, the politicians appear to be listening. Matt Cameron reports
An operational model
Scarce and shallow loss data has been the bane of operational risk models historically, but a new paper calls for more work on statistical approaches that could improve their sensitivity. By Peter Madigan
Replicating success
The financial crisis drummed home to many banks the advantages of quickly calculating exposures and executing hedges for complex portfolios. As a result, some banks are looking to the insurance sector and their use of replicating portfolios. By Clive…
Let small fires burn
The remarkable stability of the past two decades sowed the seeds of the current crisis. In future, monetary authorities will have to be more aggressive about removing the punch bowl when the party gets interesting, argues David Rowe
Searching for stability
Alexander Campbell talks to Tom Wilson, chief risk officer at Allianz
A market model on the iTraxx
A market model for the dynamics of credit-risky baskets and indexes such as the iTraxx has long been sought, but because of difficulties with the natural numéraire has remained elusive. Here, Philippe Carpentier proposes using hedging arguments to…
Variance-covariance-based risk allocation in credit portfolios
Mikhail Voropaev proposes high-precision analytical approximation for variance-covariance-based risk allocation in a portfolio of risky assets. A general case of a single-period multi-factor Merton-type model with stochastic recovery is considered. The…
