An empirical analysis of the dynamic relationship between investment grade bonds and credit default swaps
|
|
|
- Lambert Jones
- 7 years ago
- Views:
Transcription
1 An empirical analysis of the dynamic relationship between investment grade bonds and credit default swaps Roberto Blanco, Simon Brennan and Ian W. Marsh
2 Credit derivatives Financial instruments that can be used to transfer credit risk Introduced in 1992, but only significant volumes since Exponential growth since then Single-name CDS are the most liquid
3 Credit Default Swaps Underlying asset: loan or bond issued by a reference entity Two players Buyer of protection makes period payments (premium) until occurrence of credit event or maturity Seller of protection compensates the buyer for the loss incurred as a result of a credit event (difference between par value underlying asset and market value)
4 Credit Default Swaps Credit events (ISDA 1999): Bankruptcy Failure to pay (Modified) Restructuring Physical settlement: repayment at par against delivery of underlying asset In practice, any bond or loan issued by the reference entity is deliverable (the buyer has a delivery option)
5 CDS versus bonds CDS BONDS Credit risk YES YES Funded NO YES Constant maturity YES NO Always par value YES NO Short selling constraints NO SOMETIMES Counterparty risk YES NO Delivery option YES NO
6 The price of risk Ignoring delivery option and repo specials By arbitrage, bond spread and the CDS price should be (approximately) equal, less accurate if steeply sloping term structure Non-par bonds But, Delivery option and/or repo specials imply CDS>CS
7 Aims and objectives Do bond and credit derivatives markets price risk equally? Which market reacts to information first? Do bond and credit derivatives markets price risk correctly?
8 Credit default swap data Five year CDS indicative prices for notional $10 million, ISDA benchmark contracts From CreditTrade and JP Morgan Daily data from January 2001 through June 2002 (Enron, 9/11, Worldcom etc) Bid-ask spreads from CreditTrade, midpoint only from JP Morgan
9 Bond data Bloomberg generic prices The most liquid near-par fixed coupon bonds with no embedded options, no stepup clauses or anything strange 2 bonds per issuer with maturities spanning 5 years linear interpolation gives 5 year yield
10 Sample 33 companies (16 US and 17 Europe) 11 US financial institutions 5 US corporates 6 European telecom companies 11 other European corporates/financials Ratings: AAA to BBB
11 Pricing errors What reference rate - Treasuries or swap rates? Basis = CDS price - (Bond yield - Ref. rate)
12 Pricing errors Evidence suggests swap rate is best Size of the basis? Relatively small, on average (15 bp) CDS and bonds price risk equally For some reference entities the basis (especially European companies) is too large
13 Pricing errors PRICING DISCREPANCIES BY RATING basis points AAA-AA A BBB BASIS ABSOLUTE BASIS
14 Pricing errors PRICING DISCREPANCIES BY REGION basis points US EUROPE BASIS ABSOLUTE BASIS
15 Pricing errors - same pricing CDS price vs credit spread. AOL /01/ /02/ /03/ /04/ /05/ /06/ /07/ /08/ /09/ /10/ /11/ /12/ /01/ /02/ /03/ /04/ /05/ /06/2002 basis points CDS CREDIT SPREAD
16 Pricing errors - same pricing CDS price vs credit spread. FORD /01/ /02/ /03/ /04/ /05/ /06/ /07/ /08/ /09/ /10/ /11/ /12/ /01/ /02/ /03/ /04/ /05/2002 basis points CDS CREDIT SPREAD
17 Pricing errors - different pricing CDS price vs credit spread. FRANCE TELECOM /01/ /02/ /03/ /04/ /05/ /06/ /07/ /08/ /09/ /10/ /11/ /12/ /01/ /02/ /03/ /04/ /05/ /06/2002 basis points CDS CREDIT SPREAD
18 Pricing errors -different pricing CDS price vs credit spread. FIAT /01/ /02/ /03/ /04/ /05/ /06/ /07/ /08/ /09/ /10/ /11/ /12/ /01/ /02/ /03/ /04/ /05/ /06/2002 basis points CDS CREDIT SPREAD
19 Pricing errors - explanation Limits to arbitrage (short-selling constraints) Delivery option on CDS prices Non-par bonds Higher pricing errors in Europe due to: Short-selling constraints Restructuring definition
20 Information discovery In most cases the two markets price equally on average But which one informs us of credit deterioration first? Where does the information discovery take place?
21 Discovery methods If CS and CDS price are cointegrated Hasbrouck Gonzalo-Granger Both based on estimated VECM If CS and CDS price diverge over time Granger causality
22 Price discovery Hasbrouck method suggests in 24/27 cases, >50% of discovery takes place in CDS market Gonzalo-Granger method suggests in 26/27 cases majority of discovery takes place in CDS market Granger causality suggests in 2/6 cases CDS lead, 2/6 neither lead and 2/6 bond and CDS influence each other
23 Determinants of price changes Regress changes in CDS & CS on changes: Macro factors: risk-free interest rate yield curve slope market risks: stock market volatility Equity market return (business climate) Micro factors: equity price specific stock volatility
24 Determinants of price changes Adjusted R 2 by models CDS MARKET CASH MARKET (1) Individual regr., fund. variables (2) (1) plus liquidity and lagged basis (3) Pool, fund. variables (4) (3) plus lagged basis (5) (3) with interactions (6) (4) with interactions
25 Determinants of price changes CDS MARKET CASH MARKET coefficient t-statistic coefficient t-statistic 2 YEAR INTEREST RATE CDS(-1)*LONG TERM INT RATE FIRM EQUITY RETURN CDS(-1)*FIRM EQUITY RETURN CDS(-1)*FIRM EQUITY VOLATILITY/ LIQUIDITY ERROR CORRECTION ADJUSTED R
26 Bottom lines Do bond and credit derivatives markets provide the same information? YES USUALLY WHEN REFERENCE RATE IS PROXIED BY SWAP RATE IF NOT THE PROBLEM SEEMS TO BE SHORT SALES CONSTRAINTS IN CASH MARKET CTD OPTION IN THE CDS MARKET
27 Bottom lines Which market reacts to information first? CDS PRICES APPEAR TO LEAD, AND BY A SIGNIFICANT LENGTH OF TIME
28 Bottom lines Do bond and credit derivatives markets price risk correctly? WE STILL DON T KNOW, BUT IN THE SHORT TERM CDS APPEAR TO REACT MORE SIGNIFICANTLY TO (FINANCIAL) VARIABLES WE THINK ARE RELATED TO DEFAULT
29 Implications CDS are cleaner and easier to use They appear to better reflect credit deterioration in the short-term And in most cases to be equivalent to bond spreads in the long-run But, in some cases, persistent discrepancies CDS prices are a useful source of information on corporate distress, but care must be taken in the presence of valuable CTD options (especially in the case of European companies)
Credit Default Swaps and the synthetic CDO
Credit Default Swaps and the synthetic CDO Bloomberg Seminar 20March 2003 Moorad Choudhry Journal of Bond Trading and Management www.yieldcurve.com Agenda o Credit derivatives and securitisation o Synthetic
THE CDS AND THE GOVERNMENT BONDS MARKETS AFTER THE LAST FINANCIAL CRISIS. The CDS and the Government Bonds Markets after the Last Financial Crisis
THE CDS AND THE GOVERNMENT BONDS MARKETS AFTER THE LAST FINANCIAL CRISIS The CDS and the Government Bonds Markets after the Last Financial Crisis Abstract In the 1990s, the financial market had developed
Single Name Credit Derivatives:
Single ame Credit Derivatives: Products & Valuation Stephen M Schaefer London Business School Credit Risk Elective Summer 2012 Objectives To understand What single-name credit derivatives are How single
CDS IndexCo. LCDX Primer
LCDX Primer This document aims to outline the key characteristics of LCDX, and give investors the information they need to trade the index with confidence. What is LCDX? LCDX is a tradeable index with
A Short Introduction to Credit Default Swaps
A Short Introduction to Credit Default Swaps by Dr. Michail Anthropelos Spring 2010 1. Introduction The credit default swap (CDS) is the most common and widely used member of a large family of securities
Introduction to Fixed Income & Credit. Asset Management
Introduction to Fixed Income & Credit Asset Management Fixed Income explanation The Basis of Fixed Income is the need to purchase today with not enough cash available: ie. Mortgage or consumer loan You
Sovereign credit default swaps 1
Frank Packer +41 61 28 8449 frank.packer@bis.org Chamaree Suthiphongchai +662 283 537 ChamareS@bot.or.th Sovereign credit default swaps 1 The market for credit derivatives, or financial contracts whose
Credit Default Swaps (CDS)
Introduction to Credit Default Swaps (CDS) CDS Market CDS provide investors with the ability to easily and efficiently short credit Shorting allows positions to be taken in forward credit risk ik CDS allow
Credit Derivatives. Southeastern Actuaries Conference. Fall Meeting. November 18, 2005. Credit Derivatives. What are they? How are they priced?
1 Credit Derivatives Southeastern Actuaries Conference Fall Meeting November 18, 2005 Credit Derivatives What are they? How are they priced? Applications in risk management Potential uses 2 2 Credit Derivatives
1. Options 3 2. Swaps 23 3. Interest Rate Derivative Instruments 43 4. Credit Default Swaps 49 5. Key Formulas 63
1. Options 3 2. Swaps 23 3. Interest Rate Derivative Instruments 43 4. Credit Default Swaps 49 5. Key Formulas 63 2014 Allen Resources, Inc. All rights reserved. Warning: Copyright violations will be prosecuted.
INTEREST RATE SWAPS September 1999
INTEREST RATE SWAPS September 1999 INTEREST RATE SWAPS Definition: Transfer of interest rate streams without transferring underlying debt. 2 FIXED FOR FLOATING SWAP Some Definitions Notational Principal:
Credit Event Binary Options October 2007
1 Agenda Credit Event Binary Options October 2007 The over-the-counter (OTC) credit derivatives environment Credit Default Swaps (CDS) Definition Cash Flows CDS Example CBOE s offerings within the credit
Opacity, Credit Default Swap, and Financial Crisis
Opacity, Credit Default Swap, and Financial Crisis Daniel Pu Liu Walton College of Business Yingying Shao Towson University, CFA CFA Society of Arkansas Meeting October 13, 2011 Does Transparency (or the
CREDIT DEFAULT SWAPS AND CREDIT RISK PRICING MELİH SAZAK
CREDIT DEFAULT SWAPS AND CREDIT RISK PRICING MELİH SAZAK MSc Finance Cass Business School City University London 2012 1. Introduction Credit default swap (CDS), a type of over-the-counter derivative, is
LOCKING IN TREASURY RATES WITH TREASURY LOCKS
LOCKING IN TREASURY RATES WITH TREASURY LOCKS Interest-rate sensitive financial decisions often involve a waiting period before they can be implemen-ted. This delay exposes institutions to the risk that
Credit default swap and bond markets: which leads the other?
Credit default swap and bond markets: which leads the other? VIRGINIE COUDERT AND MATHIEU GEX Financial Stability Directorate Banque de France We analyse the links between credit default swaps (CDSs) and
Topics in Chapter. Key features of bonds Bond valuation Measuring yield Assessing risk
Bond Valuation 1 Topics in Chapter Key features of bonds Bond valuation Measuring yield Assessing risk 2 Determinants of Intrinsic Value: The Cost of Debt Net operating profit after taxes Free cash flow
How To Value Bonds
Chapter 6 Interest Rates And Bond Valuation Learning Goals 1. Describe interest rate fundamentals, the term structure of interest rates, and risk premiums. 2. Review the legal aspects of bond financing
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
ECON 4110: Sample Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Economists define risk as A) the difference between the return on common
BIS Working Papers. An empirical comparison of credit spreads between the bond market and the credit default swap market. No 160
BIS Working Papers No 16 An empirical comparison of credit spreads between the bond market and the credit default swap market by Haibin Zhu Monetary and Economic Department August 24 Abstract This paper
How To Understand Credit Default Swaps
The CDS market: A primer Including computational remarks on Default Probabilities online Roland Beck, Risk Analysis Group Folie 2 The CDS market: A primer Credit Default Swaps Short Introduction CDS are
Using Derivatives in the Fixed Income Markets
Using Derivatives in the Fixed Income Markets A White Paper by Manning & Napier www.manning-napier.com Unless otherwise noted, all figures are based in USD. 1 Introduction While derivatives may have a
Answer Key to Midterm
Econ 121 Money and Banking Instructor: Chao Wei Answer Key to Midterm Provide a brief and concise answer to each question. Clearly label each answer. There are 50 points on the exam. 1. (10 points, 3 points
The determinants of the swap spread Moorad Choudhry * September 2006
The determinants of the swap spread Moorad Choudhry * September 6 YieldCurve.com 6 Page 1 Interest-rate swaps are an important ALM and risk management tool in banking markets. The rate payable on a swap
Chapter 5 Financial Forwards and Futures
Chapter 5 Financial Forwards and Futures Question 5.1. Four different ways to sell a share of stock that has a price S(0) at time 0. Question 5.2. Description Get Paid at Lose Ownership of Receive Payment
Options on 10-Year U.S. Treasury Note & Euro Bund Futures in Fixed Income Portfolio Analysis
White Paper Whitepaper Options on 10-Year U.S. Treasury Note & Euro Bund Futures in Fixed Income Portfolio Analysis Copyright 2015 FactSet Research Systems Inc. All rights reserved. Options on 10-Year
FIN 684 Fixed-Income Analysis From Repos to Monetary Policy. Funding Positions
FIN 684 Fixed-Income Analysis From Repos to Monetary Policy Professor Robert B.H. Hauswald Kogod School of Business, AU Funding Positions Short-term funding: repos and money markets funding trading positions
Commercial paper collateralized by a pool of loans, leases, receivables, or structured credit products. Asset-backed commercial paper (ABCP)
GLOSSARY Asset-backed commercial paper (ABCP) Asset-backed security (ABS) Asset-backed securities index (ABX) Basel II Call (put) option Carry trade Collateralized debt obligation (CDO) Collateralized
Arbitrage in the Credit Default Swap and Bond Markets: An Empirical Study
Arbitrage in the Credit Default Swap and Bond Markets: An Empirical Study February 10, 2009 Abstract Credit risk is priced in both bond and credit derivative markets. Typically, the prices for the credit
YIELD CURVE GENERATION
1 YIELD CURVE GENERATION Dr Philip Symes Agenda 2 I. INTRODUCTION II. YIELD CURVES III. TYPES OF YIELD CURVES IV. USES OF YIELD CURVES V. YIELD TO MATURITY VI. BOND PRICING & VALUATION Introduction 3 A
FNCE 301, Financial Management H Guy Williams, 2006
REVIEW We ve used the DCF method to find present value. We also know shortcut methods to solve these problems such as perpetuity present value = C/r. These tools allow us to value any cash flow including
Introduction To Fixed Income Derivatives
Introduction To Fixed Income Derivatives Derivative instruments offer numerous benefits to investment managers and the clients they serve. The goal of this paper is to give a high level overview of derivatives
Bonds and Yield to Maturity
Bonds and Yield to Maturity Bonds A bond is a debt instrument requiring the issuer to repay to the lender/investor the amount borrowed (par or face value) plus interest over a specified period of time.
2. Determine the appropriate discount rate based on the risk of the security
Fixed Income Instruments III Intro to the Valuation of Debt Securities LOS 64.a Explain the steps in the bond valuation process 1. Estimate the cash flows coupons and return of principal 2. Determine the
CDO Risk Characteristics (Excerpted from CRMPG II)
Appendix B: CDO Risk Characteristics (Excerpted from CRMPG II) The following material originally appeared in the July 2005 CRMPG II Report. While some of the references to spread levels, as well as market
Product Descriptions Credit Derivatives. Credit Derivatives Product Descriptions
Credit Derivatives Product Descriptions 1 Products Credit Derivatives Indices Credit Derivatives Tranches Credit Derivatives Options Product Specifications Credit Derivatives Indices A credit default swap
Understanding Fixed Income
Understanding Fixed Income 2014 AMP Capital Investors Limited ABN 59 001 777 591 AFSL 232497 Understanding Fixed Income About fixed income at AMP Capital Our global presence helps us deliver outstanding
Pricing and Strategy for Muni BMA Swaps
J.P. Morgan Management Municipal Strategy Note BMA Basis Swaps: Can be used to trade the relative value of Libor against short maturity tax exempt bonds. Imply future tax rates and can be used to take
Bond Valuation. Capital Budgeting and Corporate Objectives
Bond Valuation Capital Budgeting and Corporate Objectives Professor Ron Kaniel Simon School of Business University of Rochester 1 Bond Valuation An Overview Introduction to bonds and bond markets» What
Modelling the Liquidity Premium on Corporate Bonds
1 Modelling the Liquidity Premium on Corporate Bonds Paul van Loon (*), Andrew J.G. Cairns, Alex McNeil Heriot-Watt University & The Actuarial Research Centre (ARC) (**) Alex Veys Partnership Acknowledgements:
CHAPTER 16: MANAGING BOND PORTFOLIOS
CHAPTER 16: MANAGING BOND PORTFOLIOS PROBLEM SETS 1. While it is true that short-term rates are more volatile than long-term rates, the longer duration of the longer-term bonds makes their prices and their
EXHIBIT A. Markit North America, Inc., or Markit Group Limited, or one of its subsidiaries or any successor sponsor according to each index.
EXHIBIT A CHAPTER 12: CREDIT CONTRACTS TERMS AND CONDITIONS Rule 1201. Scope (a) The rules in this chapter govern the trading of credit Contracts and Options on credit Contracts. The Clearing Organization(s)
CHAPTER 7: FIXED-INCOME SECURITIES: PRICING AND TRADING
CHAPTER 7: FIXED-INCOME SECURITIES: PRICING AND TRADING Topic One: Bond Pricing Principles 1. Present Value. A. The present-value calculation is used to estimate how much an investor should pay for a bond;
An Introduction to Securities Lending
An Introduction to Securities Lending Dominick Falco Risa Muroi PASLA / RMA Conference On Asian Securities Lending W Taipei / Taipei, Taiwan / March 2012 The Pan Asian Securities Lending Association PASLA
No. 03/11 BATH ECONOMICS RESEARCH PAPERS
Sovereign Credit Default Swaps and the Macroeconomy Yang Liu and Bruce Morley No. 03/11 BATH ECONOMICS RESEARCH PAPERS Department of Economics 1 Sovereign Credit Default Swaps and the Macroeconomy Yang
Credit derivative products and their documentation: unfunded credit derivatives
Credit derivative products and their documentation: unfunded credit derivatives 1. Introduction The range of credit derivative products, their associated jargon and many acronyms dazzle: single name, basket,
Using Currency Futures to Hedge Currency Risk
Using Currency Futures to Hedge Currency Risk By Sayee Srinivasan & Steven Youngren Product Research & Development Chicago Mercantile Exchange Inc. Introduction Investment professionals face a tough climate.
Exhibit 1. Swaps Correlate More Closely with Corporates than Treasuries Do
CBOT Interest Rate wap Complex The Tools of Your Trade Hedging a Fixed-Income Portfolio with Swap Futures The addition of 5-year and 10-year interest rate swap futures to the CBOT interest rate futures
19. Interest Rate Swaps
19. Interest Rate Swaps Reading: Stigum 19 on Swaps. See also Hull who builds from the idea (mentioned in Stigum) that swaps are like a portfolio of forward contracts. Daily Financial Times includes bid-ask
Bonds, in the most generic sense, are issued with three essential components.
Page 1 of 5 Bond Basics Often considered to be one of the most conservative of all investments, bonds actually provide benefits to both conservative and more aggressive investors alike. The variety of
Treasury Floating Rate Notes
Global Banking and Markets Treasury Floating Rate Notes DATE: April 2012 Recommendation summary The USD 7trn money market should support significant FRN issuance from the Treasury. This would diversify
Credit Derivatives Glossary
Credit Derivatives Glossary March 2009 Copyright 2009 Markit Group Limited Any reproduction, in full or in part, in any media without the prior written permission of Markit Group Limited will subject the
Treasury Bond Futures
Treasury Bond Futures Concepts and Buzzwords Basic Futures Contract Futures vs. Forward Delivery Options Reading Veronesi, Chapters 6 and 11 Tuckman, Chapter 14 Underlying asset, marking-to-market, convergence
Managing the Investment Portfolio
Managing the Investment Portfolio GSBC Executive Development Institute April 26, 2015 Portfolio Purpose & Objectives Tale of Two Balance Sheets o Components of Core Balance Sheet Originated loans Retail
Alternative Asset Classes for Pension Funds
International Finance Corporation and National Pension Commission of Nigeria Alternative Asset Classes for Pension Funds Impediments to Corporate Bond Development in Nigeria Patricia M c Kean & David White
Interest Rates and Bond Valuation
Interest Rates and Bond Valuation Chapter 6 Key Concepts and Skills Know the important bond features and bond types Understand bond values and why they fluctuate Understand bond ratings and what they mean
Relative value analysis: calculating bond spreads Moorad Choudhry January 2006
Relative value analysis: calculating bond spreads Moorad Choudhry January 2006 Relative value analysis: bond spreads Moorad Choudhry Investors measure the perceived market value, or relative value, of
TW3421x - An Introduction to Credit Risk Management Credit Default Swaps and CDS Spreads! Dr. Pasquale Cirillo. Week 7 Lesson 1
TW3421x - An Introduction to Credit Risk Management Credit Default Swaps and CDS Spreads! Dr. Pasquale Cirillo Week 7 Lesson 1 Credit Default Swaps A Credit Default Swap (CDS) is an instrument providing
Expected default frequency
KM Model Expected default frequency Expected default frequency (EDF) is a forward-looking measure of actual probability of default. EDF is firm specific. KM model is based on the structural approach to
An index of credit default swaps referencing 20 bonds collateralized by subprime mortgages.
ABX Asset-backed commercial paper (ABCP) Asset-backed security (ABS) Assets under management (AUM) Call (put) option Capital-to-risk-weighted assets ratio Carry trade Cash securitization CAT (catastrophe)
Risk and return in Þxed income arbitrage: Nickels in front of a steamroller?
Risk and return in Þxed income arbitrage Université d Evry June 2005 1 Risk and return in Þxed income arbitrage: Nickels in front of a steamroller? Jefferson Duarte University of Washington Francis Longstaff
Interest Rate Hedging. November 2007
November 2007 ASSET = LEASE Deal Example LIABILITY = DEBT Airbus A320 cost $40m 85% floating rate debt : $34m Aircraft placed on lease for 7 years at fixed rental of $350k per month, priced at 5% Libor
UNDERSTANDING PARTICIPATING WHOLE LIFE INSURANCE
UNDERSTANDING PARTICIPATING WHOLE LIFE INSURANCE equimax CLIENT GUIDE ABOUT EQUITABLE LIFE OF CANADA Equitable Life is one of Canada s largest mutual life insurance companies. For generations we ve provided
BOND FUTURES. 1. Terminology... 2 2. Application... 11. FINANCE TRAINER International Bond Futures / Page 1 of 12
BOND FUTURES 1. Terminology... 2 2. Application... 11 FINANCE TRAINER International Bond Futures / Page 1 of 12 1. Terminology A future is a contract to either sell or buy a certain underlying on a specified
Market Implied Ratings FAQ Updated: June 2010
Market Implied Ratings FAQ Updated: June 2010 1. What are MIR (Market Implied Ratings)? Moody s Analytics Market Implied Ratings translate prices from the CDS, bond and equity markets into standard Moody
Chapter 10. Fixed Income Markets. Fixed-Income Securities
Chapter 10 Fixed-Income Securities Bond: Tradable security that promises to make a pre-specified series of payments over time. Straight bond makes fixed coupon and principal payment. Bonds are traded mainly
Fixed Income Markets Then and Now
Fixed Income Markets Then and Now Jason B. Stewart, CIMA Regional Director, Managed Accounts December 4, 2015 Pacific Region Investment Conference Bond Types and Considerations Municipal Government Corporate
Trading in Treasury Bond Futures Contracts and Bonds in Australia
Trading in Treasury Bond Futures Contracts and Bonds in Australia Belinda Cheung* Treasury bond futures are a key financial product in Australia, with turnover in Treasury bond futures contracts significantly
Estimating Risk free Rates. Aswath Damodaran. Stern School of Business. 44 West Fourth Street. New York, NY 10012. Adamodar@stern.nyu.
Estimating Risk free Rates Aswath Damodaran Stern School of Business 44 West Fourth Street New York, NY 10012 Adamodar@stern.nyu.edu Estimating Risk free Rates Models of risk and return in finance start
Credit Derivatives Handbook
New York, London Detailing credit default swap products, markets and trading strategies About this handbook This handbook reviews both the basic concepts and more advanced trading strategies made possible
Long-term benchmark rates in the Norwegian bond market
Long-term benchmark rates in the Norwegian bond market Ketil Johan Rakkestad, adviser in the Securities Markets Department, and Jesper Bull Hein, economist in the Department for Market Operations and Analysis*
The CDO Product. Overview
The CDO Product Overview Collateralized debt obligations, or CDOs, are structured vehicles that are similar to leveraged closed-end funds. As discussed below, the majority are cash flow structures, a fair
How To Sell A Callable Bond
1.1 Callable bonds A callable bond is a fixed rate bond where the issuer has the right but not the obligation to repay the face value of the security at a pre-agreed value prior to the final original maturity
Credit Implied Volatility
Credit Implied Volatility Bryan Kelly* Gerardo Manzo Diogo Palhares University of Chicago & NBER University of Chicago AQR Capital Management January 2015 PRELIMINARY AND INCOMPLETE Abstract We introduce
The Markit CDS Converter Guide
The Markit CDS Converter Guide September 21, 2009 Contents Markit CDS Converter... 3 Steps for Use... 3 Interpretation of Results... 4 Email Results... 5 Interest Rate Curve... 5 Comments or Questions...
Caput Derivatives: October 30, 2003
Caput Derivatives: October 30, 2003 Exam + Answers Total time: 2 hours and 30 minutes. Note 1: You are allowed to use books, course notes, and a calculator. Question 1. [20 points] Consider an investor
Bond Valuation. FINANCE 350 Global Financial Management. Professor Alon Brav Fuqua School of Business Duke University. Bond Valuation: An Overview
Bond Valuation FINANCE 350 Global Financial Management Professor Alon Brav Fuqua School of Business Duke University 1 Bond Valuation: An Overview Bond Markets What are they? How big? How important? Valuation
CHAPTER 15: THE TERM STRUCTURE OF INTEREST RATES
Chapter - The Term Structure of Interest Rates CHAPTER : THE TERM STRUCTURE OF INTEREST RATES PROBLEM SETS.. In general, the forward rate can be viewed as the sum of the market s expectation of the future
The Single Name Corporate CDS Market. Alan White
The Single Name Corporate CDS Market Alan White CDS Structure Single Name DJ Index Products CDS Notional x [ ] bp p.a. Buyer Credit Risk of ABC Seller 125 Equally Weighted Names Buyer Delivery 10MM Principal
Insuring, Hedging and Trading Credit Risks in Financial Macroeconomics
Insuring, Hedging and Trading Credit Risks in Financial Macroeconomics Roxana Angela Calistru 1 + and Alexandru Trifu 1 1 Petre Andrei University of Iasi, Romania Abstract. The purpose of this paper is
Flow. vanilla. structured credit research. Volume Four. Understanding Credit Derivatives. be active. CDS Pricing. Relationship with the Cash Market
structured credit research Volume Four Flow Understanding Credit Derivatives CDS Pricing Relationship with the Cash Market Quantitative Pricing Models Mark-to-Market Valuation Unwinding Mechanisms be active
The case for high yield
The case for high yield Jennifer Ponce de Leon, Vice President, Senior Sector Leader Wendy Price, Director, Institutional Product Management We believe high yield is a compelling relative investment opportunity
Art of Yield Curve Modelling: Joint Consistency of Russian Government Bond Quotes
Art of Yield Curve Modelling: Joint Consistency of Russian Government Bond Quotes Victor Lapshin joint work with Marat Kurbangaleev Higher School of Economics vlapshin@hse.ru Yield Curve Modelling What?
Credit Event Auction Primer
Credit Event Auction Primer This primer is provided for informational purposes only. Each auction is governed by the Auction Settlement Terms posted on www.isda.org/credit. For any questions about this
Interest Rates and Bond Valuation
and Bond Valuation 1 Bonds Debt Instrument Bondholders are lending the corporation money for some stated period of time. Liquid Asset Corporate Bonds can be traded in the secondary market. Price at which
How To Invest In Stocks And Bonds
Review for Exam 1 Instructions: Please read carefully The exam will have 21 multiple choice questions and 5 work problems. Questions in the multiple choice section will be either concept or calculation
INTERACTIVE BROKERS DISCLOSURE STATEMENT FOR BOND TRADING
INTERACTIVE BROKERS DISCLOSURE STATEMENT FOR BOND TRADING THIS DISCLOSURE STATEMENT DISCUSSES THE CHARACTERISTICS AND RISKS OF TRADING BONDS THROUGH INTERACTIVE BROKERS (IB). BEFORE TRADING BONDS YOU SHOULD
Payout Ratio: The Most Influential Management Decision a Company Can Make?
leadership series market research Payout Ratio: The Most Influential Management Decision a Company Can Make? January 2013 In today s equity market, payout ratios have a meaningful impact on both equity
Analytical Research Series
EUROPEAN FIXED INCOME RESEARCH Analytical Research Series INTRODUCTION TO ASSET SWAPS Dominic O Kane January 2000 Lehman Brothers International (Europe) Pub Code 403 Summary An asset swap is a synthetic
INFORMATION TO CLIENTS REGARDING THE CHARACTERISTICS OF, AND RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (SHARES, SHARE-RELATED INSTRUMENTS AND BONDS)
INFORMATION TO CLIENTS REGARDING THE CHARACTERISTICS OF, AND RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (SHARES, SHARE-RELATED INSTRUMENTS AND BONDS) The client fully understands: that investments are
Click Here to Buy the Tutorial
FIN 534 Week 4 Quiz 3 (Str) Click Here to Buy the Tutorial http://www.tutorialoutlet.com/fin-534/fin-534-week-4-quiz-3- str/ For more course tutorials visit www.tutorialoutlet.com Which of the following
Saving and Investing. Chapter 11 Section Main Menu
Saving and Investing How does investing contribute to the free enterprise system? How does the financial system bring together savers and borrowers? How do financial intermediaries link savers and borrowers?
Capital preservation strategy update
Client Education Summit 2012 Capital preservation strategy update Head of Institutional Fixed Income Investments, Americas October 9, 2012 Topics for discussion 1 Capital preservation strategies 2 3 4
Case study: Making the move into investment grade corporates
National Asset-Liability Management Europe Case study: Making the move into investment grade corporates Tomas Garbaravičius 3 March 2016 London Outline The reasoning behind the decision to corporate bonds
Advanced Derivatives:
Advanced Derivatives: (plain vanilla to Rainbows) advanced swaps Structured notes exotic options Finance 7523. Spring 1999 The Neeley School of Business at TCU Steven C. Mann, 1999. Equity Swaps Example:
The Term Structure of Interest Rates CHAPTER 13
The Term Structure of Interest Rates CHAPTER 13 Chapter Summary Objective: To explore the pattern of interest rates for different-term assets. The term structure under certainty Forward rates Theories
Futures Price d,f $ 0.65 = (1.05) (1.04)
24 e. Currency Futures In a currency futures contract, you enter into a contract to buy a foreign currency at a price fixed today. To see how spot and futures currency prices are related, note that holding
INTEREST RATE SWAP (IRS)
INTEREST RATE SWAP (IRS) 1. Interest Rate Swap (IRS)... 4 1.1 Terminology... 4 1.2 Application... 11 1.3 EONIA Swap... 19 1.4 Pricing and Mark to Market Revaluation of IRS... 22 2. Cross Currency Swap...
Fixed Income Arbitrage
Risk & Return Fixed Income Arbitrage: Nickels in Front of a Steamroller by Jefferson Duarte Francis A. Longstaff Fan Yu Fixed Income Arbitrage Broad set of market-neutral strategies intended to exploit
Risk and Investment Conference 2013. Brighton, 17 19 June
Risk and Investment Conference 03 Brighton, 7 9 June 0 June 03 Acquiring fixed income assets on a forward basis Dick Rae, HSBC and Neil Snyman, Aviva Investors 8 June 0 Structure of Presentation Introduction