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CFA NY Panel Discusses Modeling Implications for Libor Cessation
I recently had the opportunity to participate in a panel for CFA Society NY, as part of their Libor Transition Series. Conversation centered on “Modeling Implications for Replacement Rates for Libor.” I was in good company with host, Peter Went, PhD, lecturer at Columbia University, Fabio Mercurio, Global Head of Quantitative Analytics at Bloomberg, and Agha Mirza, Managing Director and Global
Financial Architecture Series, Part 2: Anatomy of a Cash Flow
The only essential content of a Product is the list of payment obligations and rights to make choices which it assigns. Given how important payments are in this conceptual framework, it is worth spending examining their structure. To specify a single cash flow, we need to know how much is paid when, and to whom. It is useful to divide the information this conveys into some distinct components: The
February 26, 2013
Financial Architecture Series, Part 1: The Product Concept
In this series of posts, I intend to consider financial derivatives as a whole and develop a conceptual framework in which any such derivative can be described. In doing so, I will focus on the information content of the relevant legal documents that is pertinent to the problem of calculating the derivative’s value. An important subsequent step is the development of the conceptual structure of the
February 18, 2013
Error: Negative Rate Whilst Building Model
Interest rates are always positive. Or maybe zero. But never negative. This assumption is so common, it is often unwritten or implied. And the implications for pricing financial contracts when the assumption no longer holds are significant. However, surely this assumption always holds? Hard cash is a classic example of a zero-rate investment. Just store your currency in a strongbox, and your rate
January 16, 2013
Architecture Series, Part 8: Process and Tools
I think this will be the final post in this series. I have covered some important but somewhat dry aspects of designing an analytics library, but have said very little about finance and it's high time I did! It has been all about constructing the pipe, not deciding what flows through it. The next series of posts will be about precisely this - the information flow needed for a generic approach to
January 13, 2013
The Knock-on Effect of Regulations
A recent article in Risk magazine did a great job of pointing out one of the cases where new regulations, with the flick of a pen, are causing widespread market change, many times with unintended consequences. One of these recent proposals coming out of regions of Europe is the introduction of a new interest rate curve construction methodology to be used at pension funds that affects the longest
January 11, 2013