Posts Tagged ‘swaps


Gráfico du Jour: PIIGS en perspectiva

(Fuente: The Economist)


Escasez de dolares…

Stephen Cecchetti, del BIS, en su presentación para un congreso organizado por la Fed de San Francisco, brindo los motivos de la escasez y la razón por la renovación de las lineas swap

As I suggested at the outset, the recent crisis has brought the costs of international financial integration into greater relief. The US financial sector created a wide range of securities and sold them to banks and investors around the world. In some cases, the underwriting was bad and risks were improperly appraised. But even when this was not the case, currency mismatches were created on the balance sheets of non-US holders of the dollar-denominated assets. These assets were financed by a combination of wholesale borrowing, where a non-US bank would simply borrow dollars from a bank that had them, and foreign exchange swap arrangements, where the bank would swap its domestic currency liabilities into dollars. Importantly, both of these funding mechanisms – borrowing and swaps – are short term whereas the dollar assets held by the banks are long term.
How big is this problem? My colleagues at the BIS have used the international banking statistics to separate banks into those with more dollar assets than dollar liabilities, labelled long dollar”, and those with fewer dollar assets than liabilities, labelled short dollar.2 Graph 2 shows these two groups not only for dollars, but for other currencies as well. I would like to focus your attention on the red line at the top of the graph’s left-hand panel. What this line means is that the banks – these are Canadian, Dutch, German, Swiss, UK and Japanese banks – require an estimated aggregate of $1.2 trillion (net) in US dollars. During the crisis, because of disruptions to these markets, these obligations ultimately could only be met through international FX swap arrangements among central banks. And, critically, over the last three years this number has not fallen! If you were wondering why the swap arrangements had to be reinstated on 9 May, now you know.


Bond Vigilantes

Ese es el nombre de un blog britanico, que se catacteriza por tener posts muy explicativos. Los siguientes dos son un ejemplo de ello.

What is the risk free rate anyway?


The complete absence of risk has always been more observable in theory than in practice but in the last month or so, swap rates have fallen below gilt yields – can it be right that the lowest interest rate in the market is lower than the traditional risk free rate?  Are government bonds still the right instrument with which to observe the risk free rate?


Sovereign CDS Q&A


Q:  Can I estimate probabilities of sovereign default from CDS prices?

A:  Yes, with the cavaet that like all financial instruments, prices are driven by fear and greed and may not reflect the fundamentals.   You need to have an assumption for a recovery rate – let’s use 39% as the average.  So if Greek 5 year CDS is trading at 400 bps per year, this means that in any one year you anticipate a pre-default spread of (4% x 100/(100-39)) = 6.56%, which given markets are efficient (!) must equate with the expected one year default rate.  So on the back of an envelope, ignoring the impact of compounding and the expected timing of a default, the cumulative expected default rate for Greece over the next 5 years is 5 x 6.56%, or over 30%.




Este blog tiene excelentes entradas sobre distintas cuestiones relacionadas al quantitative and algorithmic trading.

Linkea -y comenta- un monton de papers más que interesantes. Aca van unos ejemplos.

Statistical Arbitrage (Aqui comenta un trabajo de Avellaneda y Lee y otro de Bertram, con sus respectivos links)

Porfolio Selection and Optimization (Se refiere a un working paper de Hazan y Kale sobre el tema –link directo al mismo-)

Directional Prediction (Cita un trabajo sobre la prediccion de swap spreads utilizando una regresion logistica de Paul Teetor –link directo al mismo-)

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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April 2020



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