Financial Technologies

Regulatory Capital Treatment

admin — Thu, 13 Aug 2009 19:45:05 +0000

Regulatory capital requirements impose a cost on the business of banking. Credit derivatives provide banks with a significant tool for reducing this cost. Beginning in 1996, bank regulators in a number of jurisdictions -- including the U.S., U.K., France, Germany, Canada, Australia and Hong Kong - took preliminary positions on the effectiveness of credit derivatives (or [...]

A Review of Valuation Models

admin — Wed, 12 Aug 2009 15:43:11 +0000

Credit models can be broadly separated into comparative pricing models (also known as arbitrage-free models) and econometric models (also known as equilibrium models). In the context of comparative pricing, one tries to derive the price of a new financial instrument from existing instruments in the market. The derivation typically assumes that the credit referenced can [...]

The Role of Special Purpose Vehicles

admin — Mon, 10 Aug 2009 01:40:51 +0000

Special purpose vehicles (SPVs) facilitate asset repackaging by embedding credit derivatives in SPVs, allocating cash flows, or by tranching credit risk. Many investors are unable or unwilling to enter into interest rate swaps, default swaps, currency swaps or other derivatives directly. For some, credit availability is an issue; for others it is the additional resources [...]