Interest rate markets
Cutting Edge introduction: SABR rattling
The classic approach to the benchmark interest rate options model leads to nonsensical negative probabilities at low strikes – but a new approach promises to fix the puzzle, and allow the pricing of negative-strike options. Laurie Carver introduces this…
The basis goes stochastic
The one-curve world of pre-crisis modelling is long gone – now derivatives desks need to use a variety of fixings depending on the product traded. Here, Fabio Mercurio and Zhenqiu Xie show how a stochastic multi-curve world can be modelled excluding…
Korea to start mandatory clearing in October 2013
Legislative hold-up means Korea OTC derivatives clearing will be delayed
Negative rates: Dealers struggle to price 0% floors
Central banks are holding down interest rates in an attempt to spur growth, and some parts of the fixed-income markets have entered the weird terrain of negative rates. This is sparking a modelling arms race among dealers, as they seek to build or…
What Libor reform will change – and what it won’t
The Wheatley Review of Libor succeeds in shoring up the interest rate benchmark without destabilising the derivatives market, traders say. But there are some hidden complexities. By Laurie Carver
Industry unmoved by death of minor-currency Libor
The Wheatley Review calls for an end to Libor quoting in five currencies, but the number of trades affected is small – a good thing, because the available solutions are flawed, say market participants
Dealers seek clearing exemption for new TriOptima service
TriOptima’s new risk mitigation system, triBalance, is a big hit among dealers – but it faces a regulatory death sentence
Conspiracy theory: Lawyers gear up for high-stakes Libor case
Libor manipulation fines and civil lawsuits could cost banks anywhere from $1 billion to tens – or even hundreds – of billions, according to early estimates. But plaintiffs have a high legal bar to clear. Peter Madigan reports
UK banks face up to SME swap misselling claims
The UK’s big four banks are set to review 28,000 interest rate hedging trades with smaller companies after the Financial Services Authority found evidence of serious failings in sales practices. How widespread were the problems and what went wrong? Joe…
How to mend the Libor process
Barclays’ settlement of Libor-rigging claims has sparked a full-scale financial scandal and exposed the conflicts inherent in the rate-setting process. There is a better way to organise it, says David Rowe
Profile: Credit Suisse's de Boissard on capital efficiency, Basel III and bank strategy
Credit Suisse is trying to halve risk-weighted assets for its fixed-income division. That has been painful work – businesses and clients have been cut – but Gaël de Boissard says the bank is now closer to having a Basel III-compliant franchise than its…
Dealers pitch loan format for swaps as CVA dodge
Banks are offering to replicate the economics of OTC swaps in loan format - avoiding new capital and clearing rules
Cutting complexity with a new standard CSA
A new standard credit support annex will be launched within months and is meant to curtail disputes over the valuation of collateralised derivatives trades. But only a handful of firms are expected to adopt the document in its first phase. By Nick Sawyer
Cutting edge introduction: exploring constant maturity asset swaps
New product design has been on the wane for the past few years, but there are still ideas floating around. This month’s technical section includes an article exploring a potentially interesting market – derivatives referencing asset swap spreads. By…
CMS: covering all bases
Simon Cedervall and Vladimir Piterbarg develop a new vanilla model that directly links constant maturity swap (CMS) and payment convexity in general payouts to volatilities of swaptions of all relevant tenors, as well as prices of CMS spread options,…
Full implications for CMS convexity
Simon Cedervall and Vladimir Piterbarg develop a new vanilla model that directly links constant maturity swap (CMS) and payment convexity in general payouts to volatilities of swaptions of all relevant tenors, as well as prices of CMS spread options,…
CMS: covering all bases
Simon Cedervall and Vladimir Piterbarg develop a new vanilla model that directly links constant maturity swap (CMS) and payment convexity in general payouts to volatilities of swaptions of all relevant tenors, as well as prices of CMS spread options,…
The new normal: structurers learn to live with low interest rates
Rock bottom interest rates in a difficult macro environment and the prospect of upcoming regulations have led to a need for banks to focus on products optimised around constraints. As the mood remains cautious in Europe and many developed markets…
Margin minutiae at issue in Jefferies v IDCG suit
Jefferies is suing International Derivatives Clearing Group over claims the central counterparty’s futures contracts would replicate over-the-counter swaps – a case that turns on collateral and margin differences in the cleared and uncleared markets. By…
Eris Exchange: Brady's bunch aims to make swap futures a hit
Swap futures have had some bad press in recent weeks, but Eris Exchange insists it can make them work - and add diversity to the OTC market as a result
CME and IDCG revalue swaps using OIS discounting
Switch to OIS comes a year after SwapClear revalued parts of its portfolio