Category Derivatives

Managing risks of Digital payoffs – Overhedging

When a new trade comes to the risk manager in a bank for approval, he tries to determine both the quality and the quantity of the risks inherent in the trade. If he’s not comfortable with either of the two, he may not approve it. Some of the factors that are considered are:- 1. Whether […]

Bonds – How Inflation And Interest Rates Affect Bonds – Investopedia

Bonds – How Inflation And Interest Rates Affect Bonds Ownership of a bond is the ownership of a stream of future cash payments. Those cash payments are usually made in the form of periodic interest payments and the return ofprincipal when the bond matures. In the absence of credit risk (the risk of default), the value of that stream of […]

Les Crédit Linked Note (CLN)

Le titre obligataire lié aussi appelé credit linked note (CLN) est un dérivé de crédit financé qui a recours dans son montage à un credit default swap (CDS) pour transférer un risque de crédit, mais ce en passant par un fonds commun de créances (terme anglo-saxon : special purpose vehicle ou SPV).  Cet instrument est notamment […]

Debt Investing Concept: Credit Curves

Debt Investing Concept: Credit Curves While this post is more particular to high yield and investment grade bonds, than to distressed investing, I believe it is an important concept considering what is going on in certain pockets of the market today. A credit curve is essentially the spread over treasuries of various maturities for a single bond […]

A Good explanation of CDOs (Collateralized Debt Obligations)

By Kimberly Amadeo, Guide Definition: CDOs, or Collateralized Debt Obligations, are sophisticated financial tools thatbanks use to repackage individual loans into a product that can be sold to investors on the secondary market. These packages consist of auto loans, credit card debt, mortgages or corporate debt. They are called collateralized because the promised repayment of the loans […]

Differences Between Warrants & Options

Differences Between Warrants & Options – Introduction Stock options and Stock warrants are two extremely popular derivative instruments that are traded in stock and derivative exchanges all over the world. Because stock options and warrants share the same leverage characteristics, they have been commonly assumed to be the same instrument called different names. Nothing is […]

Option Pricing: Black-Scholes vs Binomial