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Building CVA
A credit value adjustment (CVA) captures the counterparty default risk inherent in Over The Counter (OTC) derivatives portfolios. In a sense, the CVA is similar to loss reserves made on loan portfolios; on the other hand CVA is a highly volatile figure that depends directly on fluctuating daily market prices.
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Computing Greeks
A derivative is a financial contract whose value is derived from an underlying security; a stock or bond, for example. In this paper we discuss two fundamental mathematical problems with derivatives: pricing and hedging.
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Risk Intelligence
In response to the crisis, market regulators and participants have embarked on programmes to enhance risk management and corporate governance rules. banks and asset management companies are trying to enhance transparency at every level of their organisations, while the regulators face the daunting task to implement rules without impeding innovation or business growth.
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Calculating PFE
At the end of May 2011, the International Swaps and Derivatives Association (ISDA) published new analysis of the over-the-counter (OTC) derivatives markets. While the analysis showed a 12% decilne in the notional outstanding, from $475 trillion in 2007 to $419 trillion in 2010, this decline does not necessarily indicate a change in the OTC derivatives market.
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Solvency II
Solvency II is the new European directive and key regulatory requirement facing insurance firms operating within the EU. Due to take effect by the end of 2012, the changes are designed to increase protection for policy holders by ensuring the insurance market fully quantifies its risks and allocates sufficient capital to protect their businesses should difficult conditions (especially market conditions) arise.
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Straight Through Processing
The need for Straight Through Processing (STP) has never been greater. Years of mergers and acquisitions in the banking industry have left many firms with a complex network of disjointed legacy systems that are unable to communicate with other parts of the business, offer only a partial view of trading positions and are unnecessarily costly and inefficient.
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Structured Products Europe
When in 2009 the life-or-death struggles of major financial institutions forced European structured product investors to face the risk of losing the principal investments that they thought were protected, many observers wondered if the sale of these products would survive as a viable business. Two years down the line, we can say that the business did survive and we are now looking at resumed growth.
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Successful Risk Management
Recent market turmoil has compelled regulators to introduce new measures to help financial institutions meet the challenges of globalized financial markets. And firms themselves are looking for new ways to improve and tighten risk management. A close examination of the Basel Committee’s new trading book requirements reveals how these new rules will have an impact on the way banks assign assets to both their trading and banking books.
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Structured Products Conundrum
The financial crisis of 2008-09 was an eye-opener for a number of people as it forced them to realise the importance of liquidity and transparency.
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IFRS 9
In the wake of the 2008 financial crisis, the prevailing standard, IAS 39, was criticized for its complexity and the difficulties experienced in applying it.
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Reducing TCO
The financial crisis has seen global Corporate and Investment Banking (CIB ) revenues decline by more than 60% from their peak in 2007 and it will be 2012 to 2013 before recovery is expected. In 2009 this decline has seen the revenue mix change: with an increase in volume products such as FX and rates, a significant drop in proprietary trading, a decline in credit as well as a deleveraging and unwinding of “toxic assets”.
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