Convexity
Risk-neutral return distributions as investment opportunities
This paper develops means to assess investment-value-based risk-neutral distributions and from these nonzero mean returns are extracted.
Convexity adjustments à la Malliavin
This paper puts forward a novel means to approximate convexity adjustments in a general interest rate model using Malliavin calculcus.
Covid halted variance trading. Can Cboe revive the market?
With liquidity in variance swaps drying up, traders may finally be ready to give futures a shot
Bank treasuries should help monitor hidden optionality – JPM exec
Risk Live: JP Morgan ALM structurer calls for greater treasury involvement in product design
Equity vol convexity selling gains momentum
Risky hedging strategy is attracting interest but can investors learn from past convexity blow-ups?
Volatility shape-shifters: arbitrage-free shaping of implied volatility surfaces
Manipulating implied volatility surfaces using optimal transport theory has several applications
SABR convexity adjustment for an arithmetic average RFR swap
A model-independent convexity adjustment for interest rate swaps is introduced
Fleeting volatility vexes trend followers
Jumpy markets give quant firms the jitters as tried-and-tested strategies struggle in 2023
Trading the vol-of-vol risk premium
Applications of the vol-of-vol parameter for cross-asset derivatives are presented
Why a US fund manager added $4.8bn of Libor swaptions in Q1
Columbia Threadneedle’s eyebrow-raising trades were part of an effort to clean up legacy hedges
Swap rate: cash-settled swaptions in the fallback
A fallback pricing method that reduces vanilla swaptions’ complexity is introduced
Trend following’s bumper returns mask fading convexity
Research suggests strategy is no longer a reliable hedge against stock market crashes
Valuation and risk management of vanilla Libor swaptions in a fallback
A procedure to price vanilla European Libor swaptions derived from the SABR model is presented
Investors question fixes for a quant strategy that’s stalled
Banks are revamping intraday trend strategies; buy-siders aren’t sure it’ll work
Nonlinear risk decomposition for any type of fund
A risk decomposition by fund manager, factor or instrument is proposed
A defence against the next convexity crunch
Crédit Agricole rates traders describe a new way of hedging the risk of bond convexity
A Darwinian theory of model risk
An ex ante methodology is proposed to analyse the model risk pattern for a broad class of structures
Is short vol taking the long count?
Short volatility players try to box clever after strategy’s Covid rout
An end to replication
Convexity adjustments can be valued with an analytical formula, avoiding replication arguments
Government bond swaptions and how they might work
Payoffs based on bond yields instead of swap rates could offer new hedging tool, argue Crédit Agricole execs
The volatility paradigm that’s stirring up options pricing
‘Rough volatility’ models promise better pricing and hedging of options. But will they catch on?