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In our last blog we reported on the relationship between the level of interest rates and their volatility. However, all of the data underlying the analyses that we reported on in that blog came from 2013 or earlier. Since then we have seen rates decline and, in many jurisdictions, become negative. In this blog we will discuss the models that can be used for calculating the price of European style

We recently conducted a capital markets study that surveyed more than 230 global buy and sell side institutions. The results showed that 92% of firms’ derivatives usage will either increase or stay the same in 2017. In their search for better returns in a low rate environment, firms are engaging in more sophisticated investment strategies, and expanding into new asset classes, currencies and

Multi-currency collateral management has become an integral part of overall risk management. This is particularly true as regulations push to collateralize the funding of derivatives, and require more derivatives to be central cleared. The increase in collateralization is making multi-currency derivatives strategies more complex. In order to gain a comprehensive view of risk, institutions need to

In 2013, Nick DeGuillaume, Riccardo Rebonato and Andrei Pogudin published some interesting research on the volatility of interest rates. [1] They looked at different interest rates in different countries over different time periods. They concluded that there is a “universal relationship”: the short rate exhibits approximate lognormal behavior when the rate is low or high. For intermediate values

Tabb Forum recently ran two informational articles on the topic of negative interest rates. The first, titled, “ Derivatives Modeling and Negative Interest Rates: Key Considerations,” was authored by thought leader, John Hull, PhD. The other, brought to us by FINCAD’s Russell Goyder, PhD, was titled, “ A Closer Look at One Method for Modeling Negative Interest Rates.” The articles review key