Paper: CDS, transacciones

An Analysis of CDS Transactions: Implications for Public Reporting

Abstract

Ongoing regulatory reform efforts aim to make the over-the-counter derivatives market more transparent by introducing public reporting of transaction-level information, including price and volume of trades. However, to date there has been a scarcity of data on the structure of trading in this market. This paper analyzes three months of global credit default swap (CDS) transactions and presents findings on the market composition, trading dynamics, and level of standardization. We find that trading activity in the CDS market is relatively low, with a majority of reference entities for single-name CDS trading less than once a day. We also find that a high proportion of CDS transactions conform to standardized contractual and trading conventions. Examining the dealer’s role as market maker, we find that large trades with customers are generally not rapidly offset by further trades in the same reference entity, suggesting that hedging of large positions, if taking place, occurs over a longer time horizon. Through our analysis, we provide a framework for regulators and policymakers to consider the design of the public reporting regime and the necessary improvements to data collection to facilitate meaningful price reporting for credit derivatives.

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Tabla du Jour: ETFs, Alertas de los Reguladores

(Fuente: Index Universe)

Gráfico du Jour: Deuda soberana, ¿Quién la tiene?

(Fuente: Credit Writedowns)

Paper: Opciones, un poco de historia

The Early History of Option Contracts

Abtract

This chapter discusses the history of option contracts from ancient times until the appearance of Theorie der Prämiengeschäfte by Vincenz Bronzin in 1908.  The history examines the use of contracts with option features prior to the introduction of trade in free standing option contracts on the Antwerp bourse during the 16 th century.  Descriptions of the Amsterdam share option market by de la Vega in the 17 th century and de Pinto in the 18 th century are reviewed.  The specific language of a late 17 th century English option contract is provided in detail.  The development and practice of option trading in the 18 th  and 19 th centuries, as reflected  in merchant manuals of that period, is examined.  The article concludes with an overview of late 19 th century option trading in securities and commodities.

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Fun & Finance: #14, Charla sobre Mercado

En esta ocasión, German le ofrece a Gaston un pantallazo como mirar las conexiones dentro del mercado financiero.

Siempre mejor en HD.

No se olviden de LIKE THIS !!

Infograma du Jour: Bancos, Mega-Fusiones

(Fuente: MotherJones.com, via Felix Salmon)

Paper: Dinámicas Colectivas

Collective behavior in financial market

Financial market is an example of complex system, which is characterized by a highly intricate organization and the emergence of collective behavior. In this paper, we quantify this emergent dynamics in the financial market by using concepts of network synchronization. We consider networks constructed by the correlation matrix of asset returns and study the time evolution of the phase coherence among stock prices. It is verified that during financial crisis a synchronous state emerges in the system, defining the market’s direction. Furthermore, the paper proposes a statistical regression model able to identify the topological features that mostly influence such an emergence. The coefficients of the proposed model indicate that the average shortest path length is the measurement most related to network synchronization. Therefore, during economic crisis, the stock prices present a similar evolution, which tends to shorten the distances between stocks, indication a collective dynamics.

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Paper: Modelizar el contagio

Heterogeneity, correlations and financial contagion

We consider a model of contagion in financial networks recently introduced in the literature, and we characterize the effect of a few features empirically observed in real networks on the stability of the system. Notably, we consider the effect of heterogeneous degree distributions, heterogeneous balance sheet size and degree correlations between banks. We study the probability of contagion conditional on the failure of a random bank, the most connected bank and the biggest bank, and we consider the effect of targeted policies aimed at increasing the capital requirements of a few banks with high connectivity or big balance sheets. Networks with heterogeneous degree distributions are shown to be more resilient to contagion triggered by the failure of a random bank, but more fragile with respect to contagion triggered by the failure of highly connected nodes. A power law distribution of balance sheet size is shown to induce an inefficient diversification that makes the system more prone to contagion events. A targeted policy aimed at reinforcing the stability of the biggest banks is shown to improve the stability of the system in the regime of high average degree. Finally, disassortative mixing, such as that observed in real banking networks, is shown to enhance the stability of the system.

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Paper: Diversificación, rebalanceo como soluciones…

Diversification Return, Portfolio Rebalancing, and the Commodity Return Puzzle

Diversification return is an incremental return earned by a rebalanced portfolio of assets. The diversification return of a rebalanced portfolio is often incorrectly ascribed to a reduction in variance. We argue that the underlying source of the diversification return is the rebalancing, which forces the investor to sell assets that have appreciated in relative value and buy assets that have declined in relative value, as measured by their weights in the portfolio. In contrast, the incremental return of a buy-and-hold portfolio is driven by the fact that the assets that perform the best become a greater fraction of the portfolio. We use these results to resolve two puzzles associated with the Gorton and Rouwenhorst index of commodity futures, and thereby obtain a clear understanding of the source of the return of that index. Diversification return can be a significant source of return for any rebalanced portfolio of volatile assets.

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Paper: Estabilidad financiera y riesgo de cola

Tail risks and contract design from a financial stability perspective

The wider theme of this conference is about what we have learned from the recent crisis. There have been  many lessons. Some are not new but just a re-learning of old lore: ‘banks need to hold adequate capital’; ‘real-estate prices can fall dramatically’; ‘financial institutions need to avoid excessive risk taking’. The authorities are pursuing a long list of regulatory initiatives to address the externalities arising from risks in banks and markets, including Dodd-Frank in the US, the European Market Infrastructure Regulation (EMIR) in Europe, the Independent Commission on Banking (ICB) in the United Kingdom and the various Basel capital and liquidity rules internationally. And the Financial Stability Board has taken on a role in co-ordinating much of the other international effort. Academic research also has a large part to play in this process, in both identifying the issues and proposing or evaluating policy responses.

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