Learning Curve

Bank of America-Merrill Lynch in Hong Kong has hired Stephan Wenger, former portfolio manager at macro hedge fund Balyasny Asset Management.

The European regulation curbing both short selling and naked credit default swaps on sovereign issuers came into force 25 March.

The financial crisis has resulted in an increase in disputes concerning market standard documents, including a number of cases dealing with the consequences of an Event of Default under the ISDA Master Agreement.

We are moving towards the end 2012 deadline set by the G20 Leaders at the Pittsburgh summit in September 2009 for standardised derivative contracts to be traded on exchanges or electronic trading platforms where appropriate and to be cleared through central counterparties. Despite international efforts, in particular in the U.S. and the E.U., to comply with this objective, a huge amount of regulation and rule making still needs to be finalised for this objective to be met.

The latest draft of the Markets in Financial Instruments Directive calls for firms to be banned from providing direct electronic access to a trading venue.

Portfolio compression has become an important tool for managing counterparty risk exposure and reducing operational costs and risks in OTC derivatives portfolios.

Equity option traders are some of the most skillful investors in the market. We cannot all have their skills, but we can use information from option prices to extract useful information about traders’ expectations of the future behavior of the underlying equity. In this article we discuss the Risk Neutral Density, which is an estimate of the future distribution of equity prices. In this sense, option prices contain forward-looking information that, incredibly enough, permit us to peek into the future as though we had a time machine.

Following the G-20 Pittsburgh summit declaration in September 2009 that all standardized over-the-counter derivative contracts should be cleared through central counterparties by the end of 2012 at the latest, there have been varying degrees of progress in how member countries globally are seeking to achieve this goal.

Traiana has extended its real-time risk management platform, Harmony CreditLink, to cover fx options.

The Securities and Exchange Commission is asking how it should regulate the way investment companies including mutual funds, closed-end funds, exchange-traded funds, and business development companies (“funds”) use derivatives.

Credit value adjustment is the amount subtracted from the mark-to-market value of derivative positions to account for the expected loss due to counterparty defaults. Debt value adjustment is basically CVA from the counterparty’s perspective.

On January 11 the U.S. Commodity Futures Trading Commission approved final rules establishing a registration process for two types of regulated swap entities—swap dealers and major swap participants—as required under Sections 4s(a) and 4s(b) of the Commodity Exchange Act, which were inserted by the Dodd-Frank Act.