6 Months The Ban on Naked CDS in Europe

The FT has recently done a timely article-on the consequences of the EU‘ ban on the naked CDS.

Blythe Masters, painted portrait Credit Defaul...

Investors are buying protection on European banks on the basis that banks and sovereigns are so intimately linked that any increased risk of a sovereign default will increase the value of a bank CDS in a similar way to a sovereign CDS.
“The big downside of the ban is that it is likely to increase borrowing costs for financials,” said Michael Hampden-Turner, Citigroup credit strategist. Continue reading “6 Months The Ban on Naked CDS in Europe”

Bilateral vs Multilateral netting : The Central clearing of OTC Derivatives


Rama cont and Thomas Kokholm have published a paper We study the impact of central clearing of over-the-counter (OTC)transactions on counterparty exposures in a market with OTC transactions across several asset classes with heterogeneous characteristics.

The impact of introducing a central counterparty (CCP) on expected interdealer exposure is determined by the tradeoff between multilateral netting across dealers on one hand and bilateral netting across asset classes on the other hand. Continue reading “Bilateral vs Multilateral netting : The Central clearing of OTC Derivatives”

Derivates : The Risk is shifting to CCPs

At the annual general meeting of the International Swaps and Derivatives Association in Singapore concluded

June's multi-colored eyes

yesterday,a group of panelists highlighted the lack of clarity over resolution for failed Central counterparty (CCPs) as a significant concern for the G20 objectives of eliminating systemic risk.

Central counterparty clearers stand to be the next “too-big-to-fail” institutions and could pose an acute threat to the
financial system if regulators stall on plans to manage the potential failure of a clearing entity.

There are two main processes that are carried out by CCPs: Continue reading “Derivates : The Risk is shifting to CCPs”

Before Investment some questions to oneself

As I did a story few days back  When to sell and When to buy ?     trying to recollect the  some book rules for Investments that holds true in many adverse scenarios.

As all of you must be aware of that the field of behavioral finance has helped us to understand that we don’t always make rational investment decisions.We often make poor decisions because of our biases. And the Continue reading “Before Investment some questions to oneself”

Whom to Blame for Excessive Risk-Taking?

Given the lameness of the bible of psychological diagnostics, the DSM, it’s pretty easy for the lay public to play armchair

extraversion + introversion

psychologist, particularly in the realm of organizational behavior. The Financial Times supplies an unadulterated dose tonight in the form of an article titled, Call in the nerds – finance is no place for extroverts.

Here’s the premise:

There is a compelling body of evidence suggesting that the people most likely to go into the riskier areas of financial services are precisely those least suited to judging risk. Susan Cain’s recently published book Quiet cites a series of studies that suggest that extroverts tend to be attracted to the high-reward environments of investment banking, deals and trading. And, troublingly, these outgoing people also tend to be less effective at balancing opportunity and risk than some of their more introverted peers.

Ms Cain tells the story of Vincent Kaminski to show what can happen to a business when
Continue reading “Whom to Blame for Excessive Risk-Taking?”