Advertisements

Tag Archive: CREDIT DEFAULT SWAPS


Who could have seen this coming? Has Argentina turned defaulting into an art-form ?blog

So the Argentina’s second default this century is finally done. Referring to Bloomberg, by defaulting today, Argentina may trigger bondholders claims of as much as $29 billion — equal to all its foreign-currency reserves. Just remember that the last 2 days have seen ‘smart money’ buy Argentine bonds and stocks to all-time record highs.

Some more information from Bloomberg :

If the overdue interest on Argentina’s dollar-denominated securities due 2033 isn’t paid by July 30, provisions in bond indentures known as cross-default clauses would allow the nation’s other debt holders to also demand their money back immediately. The amount corresponds to Argentina’s debt issued in foreign currencies and governed by international laws. Continue reading

Advertisements

Zero Hedge is one of my favorite blog on the risk analysis and for the global events, the blog argues that we are living in the Golden blogAge of Central Bankers, and that wreaks havoc on the fundamental nature of market expectations data.

  • The VIX  (Volatility Index) is not a reliable measure of market complacency.
  • The wisdom of crowds is non-existent.
  • Fundamental risk/reward calculations for directional exposure to any security are problematic on anything other than a VERY long time horizon.
  • I’d rather be reactive and right in my portfolio than proactive and wrong.

The Golden Age of the Central Banker is a time for survivors, not heroes. And that’s the real moral of this story.

Let’s dig deep to understand the most basic question in risk management. Continue reading

If you are deployed in the Investment banking space front office, middle office or back office, you should have come across phrasesblog such as “collateral liquidity crunch” and “collateral scarcity”, and new terms such as “collateral transformation” and the “collateral upgrade trade.

Came across an interesting paper on Collateral management sharing some of the highlights, need for collateral management, how we got there, some of the Best Practices to collateral.

The 2008 financial crisis and the role derivatives played in it compelled regulators to re-examine and reengineer the entire derivatives market structure. The disruption to the derivatives market is already underway, primarily as a consequence of behemoth regulations such as the Dodd-Frank Act (DFA), European Market Infrastructure Regulation (EMIR), Basel III and others. But new global regulations are not the only driver. Continue reading

With all the Ukraine stuff, Missing Malaysia Airlines flight MH370, World’s biggest democracy getting ready for the exaggerate blogMelodrama and some procrastination from my side , some things got lost in my spindle.  Time to catch up 🙂

In the banking sector, which features leveraged institutions operating in a principal capacity, capital requirements are designed with the goal of enhancing safety and soundness, both for individual banks and for the banking system as a whole. Bank capital requirements serve as an important cushion against unexpected losses.

They incentivize banks to operate in a prudent manner by placing the bank owners’ equity at risk in the event of a failure. They serve; in short, to reduce risk and protect against failure and they reduce the potential that taxpayers will be required to backstop the bank in a time of stress.

Continue reading

Sharing an article from the Streetwise Professor –blog

Major banks are having major concerns about the risks associated with CCPs in the aftermath of a failure of  a Korean brokerage firm that resulted in the mutualization of losses on the KRX.  The firm failed due to a fat-finger error (puts? calls? whatever!) and its margins were insufficient to cover its trading losses.

This experience is making CCP member firms re-evaluate the risks of CCPs, the risk controls implemented by CCPs, and the incentives of CCPs to control risk.   They realize that CCPs do not eliminate counterparty risk so much as redistribute it.  They are concerned about the incentives that CCPs have to manage those risks unless they have substantial exposure to them (“skin in the game”).

But here’s the thing.  This particular sequence of events is exactly what CCPs are best suited to handle: the insuring of idiosyncratic risks.  In this instance, the idiosyncratic risk was an random operational error at a single brokerage. Continue reading

%d bloggers like this: