Posts Tagged ‘Derivatives


Finanzas 101: FAQ, Short Selling + CDS

En el sitio de la Unión Europea, hay un accesible FAQ sobre la regulación sobre Short Selling y Credit Default Swaps.

¿Sesgos + momentum?, maybe.

Personalmente me quedo con la tabla comparativa -cerca del final- entre la regulacion del Short Selling en USA, EU y Hong Kong.



Tabla du Jour: un VIX de Lunes…

(Fuente: Yahoo Finance)


Gráfico du Jour: Si el mundo termina hoy, ¿cuánto deberían pagar?

(Fuente: Sec Filings, via CNN Money)


Si tenes tiempo este fin de semana…

¿Por que no leerse las 600s paginas del reporte gubernamental sobre las causas de la crisis financiera y economica de USA, a.k.a The Financial Crisis Inquiry Report?

El capitulo 8 –The CDO Machine– suena atrapante….

Link al Reporte.



Too Big To Fail, Audiencias de la Comisión por la Crisis Financiera

Entre hoy y mañana se llevan a cabo las audiencias y testimonios en referencia a los roles de la intervención gubernamental y el riesgo sistemático en la Crisis Financiera en los Estados Unidos. Las mismas son llevadas a cabo por la Financial Crisis Inquiry Commission.

Hoy dio su testimonio Dick Fuld Jr (Ex CEO de Lehman Brothers), entre otros representantes del sector privado.

En el sitio de la Comisión se encuentran vídeos y los archivos de Audiencias anteriores (ejemplo: El rol de los derivados en la crisis financiera)


Hedgeate un black swan…

Risk.Net tiene un post donde introduce un nuevo desarrollo de CBOE: un instrumento que permite tomar posiciones frente a eventos de baja probabilidad (tail events).

“The skew index will offer the chance to take hedging or speculative positions on the skew of S&P 500 Index options, and consequently on the investors’ perception of forthcoming tail events such as extreme losses,” explained Shalen.

Skew reflects the fact that implied volatilities on options vary with strike levels, and is driven by supply and demand dynamics in the equity derivatives market. Historically, investors have purchased out-of-the-money puts to hedge their equity positions and sold out-of-the-money calls for premium. As a result, volatility for low strikes has increased, while volatility for high strikes has decreased.

If market participants expect a crisis, they would be more likely to buy put protection, which all things being equal would contribute to an increase in skew. Market participants could therefore take long positions in the index to hedge against future expectations of a tail event. Those who feel expectations of a crisis are overplayed could decide to short the index.

Shalen says the new product shows no correlation with market volatility, and any rise in the index is associated with the perception of correlated jumps in index stocks that occur during market crises.

En la nota se cita el siguiente paper de Peter Carr Towards a Theory of Volatility Trading (2002)


Infograma du Jour: Contraparte de GS

(Fuente: FCIC, via Zero Hedge)

FCIC tiene otros infogramas explicativos:


Creación de Activos Triple A utilizando hipotecas


Paper: Derivados y Quiebras

Bankruptcy’s Financial Crisis Accelerator: The Derivatives Players’ Priorities in Chapter 11

Chapter 11 bars bankrupts from immediately repaying their creditors, so that the court can reorganize the debtor without creditors shredding the bankrupt firm’s business. Not so for the bankrupt’s derivatives counterparties, who can seize and liquidate collateral, net out gains and losses, terminate their contracts with the bankrupt, and keep both preferential eve-of-bankruptcy payments and fraudulent conveyances they obtained from the debtor in ways that favor them over other creditors. Their right to jump to the head of the bankruptcy repayment line, ahead of even ordinary secured creditors, warps their pre-bankruptcy incentives both to monitor the pre-bankruptcy debtor and to adjust their investments to better account for counterparty risk, since they do well in any resulting bankruptcy. If they bear less risk, other creditors bear more risk and have more incentives to monitor the debtor or to assure themselves that the debtor is a safe bet. But the other creditors — such as the United States of America — are poorly positioned to provide that monitoring. Moreover, the policy justification for the super-priorities — reducing financial contagion risk — is difficult to maintain today: contagion is as likely to be propagated by the priorities as it is to be stifled, the priorities did not prevent contagion in the 2007-2008 financial melt-down and may have spread it, and we use alternate resolution mechanisms anyway for systemically vital failing financial institutions. Bankruptcy policy was made in the erroneous belief that it could contain contagion and that there was no other way to do so. The best regulatory reaction to these monitoring and regulatory disconnects is for Congress to cut back the extensive de facto priorities embedded now in chapter 11 for these derivatives counterparties. Repeal would induce the derivatives market to better recognize the risks of counterparty financial failure, which in turn should dampen the possibility of another AIG/Bear/Lehman financial melt-down, thereby helping to maintain financial stability. Yet the major financial reform packages now in Congress do not contemplate the needed cutbacks.

Link al Paper


Derivados y Regulación

Satyajit Das tiene un post muy explicativo en Naked Capitalism sobre el mercado de derivados (OTC), la problemática de valuar mark-to-market, el riesgo de contra-parte y las iniciativas de regulación. Todo muy 2008-2009.

La única objeción es la longitud del mismo.

Aqui algunos extractos:


In current accounting argot, most derivatives are Level 2 assets (Mark-to-Model). In practice, this means that they cannot be priced based on quoted trade prices (Level 1) but are valued using observable inputs; for example, comparable assets or instruments or using interest rates, volatility, correlation, credit spreads etc that can be put through an accepted model to establish values.

There are significant differences in the complexity of the models and the ability to verify and calibrate inputs. More complex products used sophisticated financial models, often derived from science or statistical methodology. There are frequently differences in choice, exact factorisation and even numerical implementation of the models. Different dealers may use different models.


Interestingly, MtM accounting is generally not available outside of financial instruments. An often neglected element of the Enron scandal was the company’s ability to convince its auditors and the U.S. Securities and Exchange Commission (”SEC’) to allow MtM accounting to be used in the natural gas industry. This allowed the company to record current earnings based on the future value of long term contracts.


Where derivative contracts are marked-to-market daily and any gain or loss covered by collateral to minimise performance risk, movements in market rates can trigger large cash requirements. These requirements may be unanticipated. If there is a failure to meet a margin call then the position must be closed out and the collateral applied against the loss. This may leave the parties unhedged against underlying risks or on offsetting positions creating the risk of additional losses.

For example, ACA Financial Guaranty sold protection totalling US$69 billion while having capital resources of around US$425 million. When ACA was downgraded below “A” credit rating, it was required to post collateral of around US$ 1.7 billion. ACA was unable to meet this requirement.


In 2006, Alan Greenspan expressed shock and horror at the state of settlements in the credit derivative market. He expressed surprise that banks trading CDS seemed to document trades on scraps of paper. The ex-Chairman, perhaps unfamiliar with the reality of financial markets, had difficulty reconciling a technologically advanced business with this “appalling” operational environment.


CDS, pros & cons

Rajiv Sethi tiene un interesante post sobre CDS; el mismo cumple el rol de resumir la postura de varios bloggers al respecto.


Leaving aside the question of whether naked CDS trading has been good or bad for Greece, it is worth asking whether there exist mechanisms through which such contracts can ever have destabilizing effects. I believe that they can, for reasons that Salmon and Jones would do well to consider.

Any entity (private or public) that faces a maturity mismatch between its expected revenues and debt obligations anticipates having to to roll over its debt periodically. Such an entity could be solvent (in the sense that the present value of its revenue stream exceeds that of its liabilities) and yet face a run on its liquid assets if investors are sufficiently pessimistic about its ability to refinance its debt. More importantly, it may face a present value reversal if the rate of interest that it must pay to borrow rises too much. In this case expectations of default can become self-fulfilling.


Dudley is speaking here of financial firms, but his arguments hold also for governments that do not have the capacity to issue fiat money. This is the case for state and local governments in the US, as well as individual countries in the eurozone. The main “assets” held by such entities are claims on future tax revenues, which are obviously not marketable. In this case, expectations of default can become self-fulfilling even when solvency would not be a concern if expectations were less pessimistic.


El autor de este post cita el siguiente paper: The Leverage Cycle.

Fun & Finance


Fun & Finance Rollover

"It is hard to be finite upon an infinite subject, and all subjects are infinite." Herman Melville

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July 2020



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