Convexity
Covid halted variance trading. Can Cboe revive the market?
With liquidity in variance swaps drying up, traders may finally be ready to give futures a shot
SABR convexity adjustment for an arithmetic average RFR swap
A model-independent convexity adjustment for interest rate swaps is introduced
Fleeting volatility vexes trend followers
Jumpy markets give quant firms the jitters as tried-and-tested strategies struggle in 2023
Trading the vol-of-vol risk premium
Applications of the vol-of-vol parameter for cross-asset derivatives are presented
Why a US fund manager added $4.8bn of Libor swaptions in Q1
Columbia Threadneedle’s eyebrow-raising trades were part of an effort to clean up legacy hedges
Swap rate: cash-settled swaptions in the fallback
A fallback pricing method that reduces vanilla swaptions’ complexity is introduced
Trend following’s bumper returns mask fading convexity
Research suggests strategy is no longer a reliable hedge against stock market crashes
Valuation and risk management of vanilla Libor swaptions in a fallback
A procedure to price vanilla European Libor swaptions derived from the SABR model is presented
Investors question fixes for a quant strategy that’s stalled
Banks are revamping intraday trend strategies; buy-siders aren’t sure it’ll work
Nonlinear risk decomposition for any type of fund
A risk decomposition by fund manager, factor or instrument is proposed
A defence against the next convexity crunch
Crédit Agricole rates traders describe a new way of hedging the risk of bond convexity
A Darwinian theory of model risk
An ex ante methodology is proposed to analyse the model risk pattern for a broad class of structures
Is short vol taking the long count?
Short volatility players try to box clever after strategy’s Covid rout
An end to replication
Convexity adjustments can be valued with an analytical formula, avoiding replication arguments
Government bond swaptions and how they might work
Payoffs based on bond yields instead of swap rates could offer new hedging tool, argue Crédit Agricole execs
The volatility paradigm that’s stirring up options pricing
‘Rough volatility’ models promise better pricing and hedging of options. But will they catch on?
CCP discounting big bang: convexity adjustment
The collateral transition to SOFR will create convexity adjustments that need to be modelled
How pre-trade IM calculation can optimise and reduce collateral drag
With firms under pressure to make their systems compliant with uncleared margin rules (UMR), the increase in margin requirements has put further strain on the availability of high-quality liquid assets. Mohit Gupta, senior product specialist at Cassini…
Structured products – The ART of risk transfer
Exploring the risk thrown up by autocallables has created a new family of structured products, offering diversification to investors while allowing their manufacturers room to extend their portfolios, writes Manvir Nijhar, co-head of equities and equity…
Ripple effect: The impact of moving away from Libor
Sponsored Q&A
Multicurve modelling is about to get more complex
Research into rates pricing is becoming more urgent given recent regulatory changes