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Recently, there has been an increase in straight payout structures being priced and traded in the interest rate derivatives market. Unusual market conditions and a general aversion to conventional exotics has helped these trades evolve relatively quickly. Although they are very complex trades to value these simple exotics offer very clear and straight forward payouts and allow speculation on or hedging of very specific types of risk. Often the more simple the payout, the more complex the initial pricing and modeling can be.
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Counterparty credit risk management has been evolving for over a decade from passive risk quantification and reserves to active management and hedging.
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As of the time of writing, parties to over-the-counter derivatives have no obligation under New York law or under market-standard Master Agreements to require collateral.
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This Learning Curve examines different variance swaps and how they can be used to manage volatility exposure.
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This article highlights the importance of tail identification within a multi-dimensional setting, with a view to the wider problem of contagion modelling.
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During the past few years, the exponential growth in the market for over-the-counter (OTC) derivatives and structured products has expanded investment opportunities available for asset managers.
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The failures of Lehman Brothers and Bear Stearns have heaped pressure on buy-side firms to readdress their collateral management process, while fears of counterparty credit risks remain.
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The Markit ABX index, or the Markit ABX.HE index, has moved from being an arcane index tracking a set of U.S. home equity market derivatives to a widely watched barometer of the asset-backed securities markets.
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The International Swaps and Derivatives Association published its new loan credit-default swap documentation on July 30, which is effective from Aug. 6.
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In the second part of this Learning Curve we will analyze a strategy for optimizing spread convexity profiles, as laid out in part one last week.