Over-The-Counter Derivatives
Total Page:16
File Type:pdf, Size:1020Kb
Load more
Recommended publications
-
Up to EUR 3,500,000.00 7% Fixed Rate Bonds Due 6 April 2026 ISIN
Up to EUR 3,500,000.00 7% Fixed Rate Bonds due 6 April 2026 ISIN IT0005440976 Terms and Conditions Executed by EPizza S.p.A. 4126-6190-7500.7 This Terms and Conditions are dated 6 April 2021. EPizza S.p.A., a company limited by shares incorporated in Italy as a società per azioni, whose registered office is at Piazza Castello n. 19, 20123 Milan, Italy, enrolled with the companies’ register of Milan-Monza-Brianza- Lodi under No. and fiscal code No. 08950850969, VAT No. 08950850969 (the “Issuer”). *** The issue of up to EUR 3,500,000.00 (three million and five hundred thousand /00) 7% (seven per cent.) fixed rate bonds due 6 April 2026 (the “Bonds”) was authorised by the Board of Directors of the Issuer, by exercising the powers conferred to it by the Articles (as defined below), through a resolution passed on 26 March 2021. The Bonds shall be issued and held subject to and with the benefit of the provisions of this Terms and Conditions. All such provisions shall be binding on the Issuer, the Bondholders (and their successors in title) and all Persons claiming through or under them and shall endure for the benefit of the Bondholders (and their successors in title). The Bondholders (and their successors in title) are deemed to have notice of all the provisions of this Terms and Conditions and the Articles. Copies of each of the Articles and this Terms and Conditions are available for inspection during normal business hours at the registered office for the time being of the Issuer being, as at the date of this Terms and Conditions, at Piazza Castello n. -
Section 1256 and Foreign Currency Derivatives
Section 1256 and Foreign Currency Derivatives Viva Hammer1 Mark-to-market taxation was considered “a fundamental departure from the concept of income realization in the U.S. tax law”2 when it was introduced in 1981. Congress was only game to propose the concept because of rampant “straddle” shelters that were undermining the U.S. tax system and commodities derivatives markets. Early in tax history, the Supreme Court articulated the realization principle as a Constitutional limitation on Congress’ taxing power. But in 1981, lawmakers makers felt confident imposing mark-to-market on exchange traded futures contracts because of the exchanges’ system of variation margin. However, when in 1982 non-exchange foreign currency traders asked to come within the ambit of mark-to-market taxation, Congress acceded to their demands even though this market had no equivalent to variation margin. This opportunistic rather than policy-driven history has spawned a great debate amongst tax practitioners as to the scope of the mark-to-market rule governing foreign currency contracts. Several recent cases have added fuel to the debate. The Straddle Shelters of the 1970s Straddle shelters were developed to exploit several structural flaws in the U.S. tax system: (1) the vast gulf between ordinary income tax rate (maximum 70%) and long term capital gain rate (28%), (2) the arbitrary distinction between capital gain and ordinary income, making it relatively easy to convert one to the other, and (3) the non- economic tax treatment of derivative contracts. Straddle shelters were so pervasive that in 1978 it was estimated that more than 75% of the open interest in silver futures were entered into to accommodate tax straddles and demand for U.S. -
Finance: a Quantitative Introduction Chapter 9 Real Options Analysis
Investment opportunities as options The option to defer More real options Some extensions Finance: A Quantitative Introduction Chapter 9 Real Options Analysis Nico van der Wijst 1 Finance: A Quantitative Introduction c Cambridge University Press Investment opportunities as options The option to defer More real options Some extensions 1 Investment opportunities as options 2 The option to defer 3 More real options 4 Some extensions 2 Finance: A Quantitative Introduction c Cambridge University Press Investment opportunities as options Option analogy The option to defer Sources of option value More real options Limitations of option analogy Some extensions The essential economic characteristic of options is: the flexibility to exercise or not possibility to choose best alternative walk away from bad outcomes Stocks and bonds are passively held, no flexibility Investments in real assets also have flexibility, projects can be: delayed or speeded up made bigger or smaller abandoned early or extended beyond original life-time, etc. 3 Finance: A Quantitative Introduction c Cambridge University Press Investment opportunities as options Option analogy The option to defer Sources of option value More real options Limitations of option analogy Some extensions Real Options Analysis Studies and values this flexibility Real options are options where underlying value is a real asset not a financial asset as stock, bond, currency Flexibility in real investments means: changing cash flows along the way: profiting from opportunities, cutting off losses Discounted -
Show Me the Money: Option Moneyness Concentration and Future Stock Returns Kelley Bergsma Assistant Professor of Finance Ohio Un
Show Me the Money: Option Moneyness Concentration and Future Stock Returns Kelley Bergsma Assistant Professor of Finance Ohio University Vivien Csapi Assistant Professor of Finance University of Pecs Dean Diavatopoulos* Assistant Professor of Finance Seattle University Andy Fodor Professor of Finance Ohio University Keywords: option moneyness, implied volatility, open interest, stock returns JEL Classifications: G11, G12, G13 *Communications Author Address: Albers School of Business and Economics Department of Finance 901 12th Avenue Seattle, WA 98122 Phone: 206-265-1929 Email: [email protected] Show Me the Money: Option Moneyness Concentration and Future Stock Returns Abstract Informed traders often use options that are not in-the-money because these options offer higher potential gains for a smaller upfront cost. Since leverage is monotonically related to option moneyness (K/S), it follows that a higher concentration of trading in options of certain moneyness levels indicates more informed trading. Using a measure of stock-level dollar volume weighted average moneyness (AveMoney), we find that stock returns increase with AveMoney, suggesting more trading activity in options with higher leverage is a signal for future stock returns. The economic impact of AveMoney is strongest among stocks with high implied volatility, which reflects greater investor uncertainty and thus higher potential rewards for informed option traders. AveMoney also has greater predictive power as open interest increases. Our results hold at the portfolio level as well as cross-sectionally after controlling for liquidity and risk. When AveMoney is calculated with calls, a portfolio long high AveMoney stocks and short low AveMoney stocks yields a Fama-French five-factor alpha of 12% per year for all stocks and 33% per year using stocks with high implied volatility. -
Revised Standards for Minimum Capital Requirements for Market Risk by the Basel Committee on Banking Supervision (“The Committee”)
A revised version of this standard was published in January 2019. https://www.bis.org/bcbs/publ/d457.pdf Basel Committee on Banking Supervision STANDARDS Minimum capital requirements for market risk January 2016 A revised version of this standard was published in January 2019. https://www.bis.org/bcbs/publ/d457.pdf This publication is available on the BIS website (www.bis.org). © Bank for International Settlements 2015. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISBN 978-92-9197-399-6 (print) ISBN 978-92-9197-416-0 (online) A revised version of this standard was published in January 2019. https://www.bis.org/bcbs/publ/d457.pdf Minimum capital requirements for Market Risk Contents Preamble ............................................................................................................................................................................................... 5 Minimum capital requirements for market risk ..................................................................................................................... 5 A. The boundary between the trading book and banking book and the scope of application of the minimum capital requirements for market risk ........................................................................................................... 5 1. Scope of application and methods of measuring market risk ...................................................................... 5 2. Definition of the trading book .................................................................................................................................. -
Straddles and Strangles to Help Manage Stock Events
Webinar Presentation Using Straddles and Strangles to Help Manage Stock Events Presented by Trading Strategy Desk 1 Fidelity Brokerage Services LLC ("FBS"), Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917 690099.3.0 Disclosures Options’ trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read Characteristics and Risks of Standardized Options, and call 800-544- 5115 to be approved for options trading. Supporting documentation for any claims, if applicable, will be furnished upon request. Examples in this presentation do not include transaction costs (commissions, margin interest, fees) or tax implications, but they should be considered prior to entering into any transactions. The information in this presentation, including examples using actual securities and price data, is strictly for illustrative and educational purposes only and is not to be construed as an endorsement, or recommendation. 2 Disclosures (cont.) Greeks are mathematical calculations used to determine the effect of various factors on options. Active Trader Pro PlatformsSM is available to customers trading 36 times or more in a rolling 12-month period; customers who trade 120 times or more have access to Recognia anticipated events and Elliott Wave analysis. Technical analysis focuses on market action — specifically, volume and price. Technical analysis is only one approach to analyzing stocks. When considering which stocks to buy or sell, you should use the approach that you're most comfortable with. As with all your investments, you must make your own determination as to whether an investment in any particular security or securities is right for you based on your investment objectives, risk tolerance, and financial situation. -
The Cross Section of Foreign Currency Risk Premia and Consumption Growth Risk
The Cross Section of Foreign Currency Risk Premia and Consumption Growth Risk By HANNO LUSTIG AND ADRIEN VERDELHAN* Aggregate consumption growth risk explains why low interest rate currencies do not appreciate as much as the interest rate differential and why high interest rate currencies do not depreciate as much as the interest rate differential. Domestic investors earn negative excess returns on low interest rate currency portfolios and positive excess returns on high interest rate currency portfolios. Because high interest rate currencies depreciate on average when domestic consumption growth is low and low interest rate currencies appreciate under the same conditions, low interest rate currencies provide domestic investors with a hedge against domestic aggregate consumption growth risk. (JEL E21, E43, F31, G11) When the foreign interest rate is higher than rate currencies, on average, depreciate against the US interest rate, risk-neutral and rational US the dollar when US consumption growth is low, investors should expect the foreign currency to while low foreign interest rate currencies do depreciate against the dollar by the difference not. The textbook logic we use for any other between the two interest rates. This way, bor- asset can be applied to exchange rates, and it rowing at home and lending abroad, or vice works. If an asset offers low returns when the versa, produces a zero return in excess of the investor’s consumption growth is low, it is US short-term interest rate. This is known as the risky, and the investor wants to be compensated uncovered interest rate parity (UIP) condition, through a positive excess return. -
Derivative Securities
2. DERIVATIVE SECURITIES Objectives: After reading this chapter, you will 1. Understand the reason for trading options. 2. Know the basic terminology of options. 2.1 Derivative Securities A derivative security is a financial instrument whose value depends upon the value of another asset. The main types of derivatives are futures, forwards, options, and swaps. An example of a derivative security is a convertible bond. Such a bond, at the discretion of the bondholder, may be converted into a fixed number of shares of the stock of the issuing corporation. The value of a convertible bond depends upon the value of the underlying stock, and thus, it is a derivative security. An investor would like to buy such a bond because he can make money if the stock market rises. The stock price, and hence the bond value, will rise. If the stock market falls, he can still make money by earning interest on the convertible bond. Another derivative security is a forward contract. Suppose you have decided to buy an ounce of gold for investment purposes. The price of gold for immediate delivery is, say, $345 an ounce. You would like to hold this gold for a year and then sell it at the prevailing rates. One possibility is to pay $345 to a seller and get immediate physical possession of the gold, hold it for a year, and then sell it. If the price of gold a year from now is $370 an ounce, you have clearly made a profit of $25. That is not the only way to invest in gold. -
Update on the Insurance Industry's Use of Derivatives and Exposure Trends
2/11/2021 Update on the Insurance Industry's Use of Derivatives and Exposure Trends The NAIC’s Capital Markets Bureau monitors developments in the capital markets globally and analyzes their potential impact on the investment portfolios of US insurance companies. A list of archived Capital Markets Bureau Special Reports is available via the index Update on the Insurance Industry's Use of Derivatives and Exposure Trends The NAIC Capital Markets Bureau published several special reports in the past few years concerning derivatives, providing insight into exposure trends, credit default swaps, hedging, changing reporting requirements, and market developments resulting from enactment of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and other global initiatives. This report reviews U.S. insurers' derivatives holdings and exposure trends as of year-end 2015. Key Points: Derivatives activity in the U.S. insurance industry leveled off in 2015. The total notional value of derivative positions was virtually unchanged over year-end 2014, at $2 trillion. An overwhelming 94% of total industry notional value pertains to hedging, virtually unchanged since year-end 2010, when the Capital Markets Bureau began analyzing the data. Out of that 94%, 49% pertained to interest rate hedges, same as a year earlier, while 24% pertained to equity risk. Life insurers accounted for approximately 95% of total notional value, compared to 94% at year-end 2014. Property/casualty (P/C) insurers accounted for 5%, down from 6% a year earlier. Derivatives exposure in the health and fraternal segments was minimal, and title insurers reported no exposure. -
Value at Risk for Linear and Non-Linear Derivatives
Value at Risk for Linear and Non-Linear Derivatives by Clemens U. Frei (Under the direction of John T. Scruggs) Abstract This paper examines the question whether standard parametric Value at Risk approaches, such as the delta-normal and the delta-gamma approach and their assumptions are appropriate for derivative positions such as forward and option contracts. The delta-normal and delta-gamma approaches are both methods based on a first-order or on a second-order Taylor series expansion. We will see that the delta-normal method is reliable for linear derivatives although it can lead to signif- icant approximation errors in the case of non-linearity. The delta-gamma method provides a better approximation because this method includes second order-effects. The main problem with delta-gamma methods is the estimation of the quantile of the profit and loss distribution. Empiric results by other authors suggest the use of a Cornish-Fisher expansion. The delta-gamma method when using a Cornish-Fisher expansion provides an approximation which is close to the results calculated by Monte Carlo Simulation methods but is computationally more efficient. Index words: Value at Risk, Variance-Covariance approach, Delta-Normal approach, Delta-Gamma approach, Market Risk, Derivatives, Taylor series expansion. Value at Risk for Linear and Non-Linear Derivatives by Clemens U. Frei Vordiplom, University of Bielefeld, Germany, 2000 A Thesis Submitted to the Graduate Faculty of The University of Georgia in Partial Fulfillment of the Requirements for the Degree Master of Arts Athens, Georgia 2003 °c 2003 Clemens U. Frei All Rights Reserved Value at Risk for Linear and Non-Linear Derivatives by Clemens U. -
Nber Working Paper Series Common Risk Factors In
NBER WORKING PAPER SERIES COMMON RISK FACTORS IN CURRENCY MARKETS Hanno Lustig Nikolai Roussanov Adrien Verdelhan Working Paper 14082 http://www.nber.org/papers/w14082 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 June 2008 The authors thank Andy Atkeson, Alessandro Beber, Frederico Belo, Michael Brennan, Alain Chaboud, John Cochrane, Pierre Collin-Dufresne, Magnus Dahlquist, Kent Daniel, Darrell Duffie, Xavier Gabaix, John Heaton, Urban Jermann, Don Keim, Leonid Kogan, Olivier Jeanne, Karen Lewis, Fang Li, Francis Longstaff, Pascal Maenhout, Rob Martin, Anna Pavlova, Monika Piazzesi, Richard Roll, Geert Rouwenhorst, Clemens Sialm, Rob Stambaugh, Rene Stulz, Jessica Wachter, Amir Yaron, Hongjun Yan, Moto Yogo and seminar participants at many institutions and conferences for helpful comments. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer- reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2008 by Hanno Lustig, Nikolai Roussanov, and Adrien Verdelhan. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Common Risk Factors in Currency Markets Hanno Lustig, Nikolai Roussanov, and Adrien Verdelhan NBER Working Paper No. 14082 June 2008 JEL No. F31,G12,G15 ABSTRACT Currency excess returns are highly predictable and strongly counter-cyclical. The average excess returns on low interest rate currencies are 4.8 percent per annum smaller than those on high interest rate currencies after accounting for transaction costs. -
Inflation Derivatives: Introduction One of the Latest Developments in Derivatives Markets Are Inflation- Linked Derivatives, Or, Simply, Inflation Derivatives
Inflation-indexed Derivatives Inflation derivatives: introduction One of the latest developments in derivatives markets are inflation- linked derivatives, or, simply, inflation derivatives. The first examples were introduced into the market in 2001. They arose out of the desire of investors for real, inflation-linked returns and hedging rather than nominal returns. Although index-linked bonds are available for those wishing to have such returns, as we’ve observed in other asset classes, inflation derivatives can be tailor- made to suit specific requirements. Volume growth has been rapid during 2003, as shown in Figure 9.4 for the European market. 4000 3000 2000 1000 0 Jul 01 Jul 02 Jul 03 Jan 02 Jan 03 Sep 01 Sep 02 Mar 02 Mar 03 Nov 01 Nov 02 May 01 May 02 May 03 Figure 9.4 Inflation derivatives volumes, 2001-2003 Source: ICAP The UK market, which features a well-developed index-linked cash market, has seen the largest volume of business in inflation derivatives. They have been used by market-makers to hedge inflation-indexed bonds, as well as by corporates who wish to match future liabilities. For instance, the retail company Boots plc added to its portfolio of inflation-linked bonds when it wished to better match its future liabilities in employees’ salaries, which were assumed to rise with inflation. Hence, it entered into a series of 1 Inflation-indexed Derivatives inflation derivatives with Barclays Capital, in which it received a floating-rate, inflation-linked interest rate and paid nominal fixed- rate interest rate. The swaps ranged in maturity from 18 to 28 years, with a total notional amount of £300 million.