Risk magazine - Volume 23/Number 3

The price is wrong

As the basis between Libor and overnight index swap rates ballooned during the credit crisis, banks were forced to reassess methods for pricing collateralised and uncollateralised derivatives trades. The result is a move towards a new market standard in…

Future options

Tomorrow’s derivatives market looks likely to shift away from exotic products to focus more heavily on centrally cleared vanilla trades. Dealers hope to see a big jump in volumes, which will offset a smaller decline in margins. They also have an eye on…

Proprietary raiding

US President Obama in January unveiled a proposal to prevent banks from owning, investing in or sponsoring hedge funds, private equity funds or proprietary trading operations for their own profit. What do authorities mean by ‘prop trading’ and how…

Derivatives caught in the spotlight

Regulators are considering extending transparency requirements to include pre- and post-trade reporting for over-the-counter derivatives. But the industry is keen to spell out the limits of what can be done without damaging investor confidence and…

Ucit hedge funds proceed with caution

A number of hedge fund managers have launched Ucits III-compliant funds in an attempt to attract stickier institutional money. But success is far from guaranteed, with one high-profile fund recently undergoing a restructuring after failing to attract…

Playing the gold card

Gold exchange-traded funds (ETFs) saw explosive growth in 2009, but this year has so far seen net outflows of investor capital. However, with inflation fears and sovereign risk high on investors’ agendas, ETF providers expect interest to pick up once…

No accounting for tastes

The Financial Accounting Standards Board has been robust in its defence of fair-value accounting, and is now set to ruffle regulatory feathers by proposing the approach be expanded to cover all financial instruments. Risk speaks to the standard-setter’s…

Loan loss calculation conundrum

Replacing the incurred loss provisioning model remains high on the agenda of accountants, bankers and regulators. The challenge is to find a way to calculate expected loss that satisfies the diverse objectives of all three camps. Can a compromise be…

Sovereign CDS: Cat or canary?

Sovereign credit default swaps have become magnets for controversy amid worries about the condition of government finances. Does the market really reflect the probability of default and has too much attention been paid to it?

The Lehman flip clause flap

The decision of a US bankruptcy court to void contractual provisions that shield investors from the credit risk of swap counterparties in structured finance deals has put the legal systems of England and the US on a collision course. It also has…

Exposing counterparty risk exposure

Banks have focused on improving counterparty credit risk management capabilities since the onset of the financial crisis. How are they changing systems to ensure accurate monitoring of exposures on a real-time basis?

Hitting the groundwork

As head of the EC’s financial markets infrastructure unit, Patrick Pearson is leading the effort to draw up new European legislation for derivatives. He talks to Risk about the progress of that effort and the importance of aligning the rules with similar…

Regulation consternation

Firm proposals for regulating South African hedge funds are due by mid-2010. But some managers question the need for more regulation.

Uncertain liquidity ratios

Like their counterparts elsewhere, South African banks are bracing themselves for a round of changes to Basel II rules. But it is the implications for liquidity and not capital that most concern market participants.

Minor activity

Although South Africa is a major commodity producer, activity by local investors in commodities is minor compared with other markets. While there are efforts to stimulate greater interest, these are being hampered by foreign exchange controls.

Individual names in top-down CDO pricing models

The Gaussian copula collapsed as a means of pricing collateralised debt obligations in the crisis of 2008, as to match prices and deltas nonsensical correlation parameters were required. By adapting the traditional framework to cater for more general…

Crossing the chasm

Existing risk management information systems proved too fragmented and cumbersome to meet the requirements of decision-makers during the crisis. David Rowe argues that a major reappraisal is required

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