Credit Default Swaps, Guarantees and Insurance Policies: Same Effect, Different Treatment?
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How Much Do Banks Use Credit Derivatives to Reduce Risk?
How much do banks use credit derivatives to reduce risk? Bernadette A. Minton, René Stulz, and Rohan Williamson* June 2006 This paper examines the use of credit derivatives by US bank holding companies from 1999 to 2003 with assets in excess of one billion dollars. Using the Federal Reserve Bank of Chicago Bank Holding Company Database, we find that in 2003 only 19 large banks out of 345 use credit derivatives. Though few banks use credit derivatives, the assets of these banks represent on average two thirds of the assets of bank holding companies with assets in excess of $1 billion. To the extent that banks have positions in credit derivatives, they tend to be used more for dealer activities than for hedging activities. Nevertheless, a majority of the banks that use credit derivative are net buyers of credit protection. Banks are more likely to be net protection buyers if they engage in asset securitization, originate foreign loans, and have lower capital ratios. The likelihood of a bank being a net protection buyer is positively related to the percentage of commercial and industrial loans in a bank’s loan portfolio and negatively or not related to other types of bank loans. The use of credit derivatives by banks is limited because adverse selection and moral hazard problems make the market for credit derivatives illiquid for the typical credit exposures of banks. *Respectively, Associate Professor, The Ohio State University; Everett D. Reese Chair of Banking and Monetary Economics, The Ohio State University and NBER; and Associate Professor, Georgetown University. We are grateful to Jim O’Brien and Mark Carey for discussions. -
Wolfsberg Group Trade Finance Principles 2019
Trade Finance Principles 1 The Wolfsberg Group, ICC and BAFT Trade Finance Principles 2019 amendment PUBLIC Trade Finance Principles 2 Copyright © 2019, Wolfsberg Group, International Chamber of Commerce (ICC) and BAFT Wolfsberg Group, ICC and BAFT hold all copyright and other intellectual property rights in this collective work and encourage its reproduction and dissemination subject to the following: Wolfsberg Group, ICC and BAFT must be cited as the source and copyright holder mentioning the title of the document and the publication year if available. Express written permission must be obtained for any modification, adaptation or translation, for any commercial use and for use in any manner that implies that another organization or person is the source of, or is associated with, the work. The work may not be reproduced or made available on websites except through a link to the relevant Wolfsberg Group, ICC and/or BAFT web page (not to the document itself). Permission can be requested from the Wolfsberg Group, ICC or BAFT. This document was prepared for general information purposes only, does not purport to be comprehensive and is not intended as legal advice. The opinions expressed are subject to change without notice and any reliance upon information contained in the document is solely and exclusively at your own risk. The publishing organisations and the contributors are not engaged in rendering legal or other expert professional services for which outside competent professionals should be sought. PUBLIC Trade Finance Principles -
Implied Volatility Modeling
Implied Volatility Modeling Sarves Verma, Gunhan Mehmet Ertosun, Wei Wang, Benjamin Ambruster, Kay Giesecke I Introduction Although Black-Scholes formula is very popular among market practitioners, when applied to call and put options, it often reduces to a means of quoting options in terms of another parameter, the implied volatility. Further, the function σ BS TK ),(: ⎯⎯→ σ BS TK ),( t t ………………………………(1) is called the implied volatility surface. Two significant features of the surface is worth mentioning”: a) the non-flat profile of the surface which is often called the ‘smile’or the ‘skew’ suggests that the Black-Scholes formula is inefficient to price options b) the level of implied volatilities changes with time thus deforming it continuously. Since, the black- scholes model fails to model volatility, modeling implied volatility has become an active area of research. At present, volatility is modeled in primarily four different ways which are : a) The stochastic volatility model which assumes a stochastic nature of volatility [1]. The problem with this approach often lies in finding the market price of volatility risk which can’t be observed in the market. b) The deterministic volatility function (DVF) which assumes that volatility is a function of time alone and is completely deterministic [2,3]. This fails because as mentioned before the implied volatility surface changes with time continuously and is unpredictable at a given point of time. Ergo, the lattice model [2] & the Dupire approach [3] often fail[4] c) a factor based approach which assumes that implied volatility can be constructed by forming basis vectors. Further, one can use implied volatility as a mean reverting Ornstein-Ulhenbeck process for estimating implied volatility[5]. -
Tax Treatment of Derivatives
United States Viva Hammer* Tax Treatment of Derivatives 1. Introduction instruments, as well as principles of general applicability. Often, the nature of the derivative instrument will dictate The US federal income taxation of derivative instruments whether it is taxed as a capital asset or an ordinary asset is determined under numerous tax rules set forth in the US (see discussion of section 1256 contracts, below). In other tax code, the regulations thereunder (and supplemented instances, the nature of the taxpayer will dictate whether it by various forms of published and unpublished guidance is taxed as a capital asset or an ordinary asset (see discus- from the US tax authorities and by the case law).1 These tax sion of dealers versus traders, below). rules dictate the US federal income taxation of derivative instruments without regard to applicable accounting rules. Generally, the starting point will be to determine whether the instrument is a “capital asset” or an “ordinary asset” The tax rules applicable to derivative instruments have in the hands of the taxpayer. Section 1221 defines “capital developed over time in piecemeal fashion. There are no assets” by exclusion – unless an asset falls within one of general principles governing the taxation of derivatives eight enumerated exceptions, it is viewed as a capital asset. in the United States. Every transaction must be examined Exceptions to capital asset treatment relevant to taxpayers in light of these piecemeal rules. Key considerations for transacting in derivative instruments include the excep- issuers and holders of derivative instruments under US tions for (1) hedging transactions3 and (2) “commodities tax principles will include the character of income, gain, derivative financial instruments” held by a “commodities loss and deduction related to the instrument (ordinary derivatives dealer”.4 vs. -
SAMPLE NOTES from OUR LLB CORE GUIDE: Contract Law Privity Chapter
SAMPLE NOTES FROM OUR LLB CORE GUIDE: Contract Law Privity chapter LLB Answered is a comprehensive, first-class set of exam-focused study notes for the Undergraduate Law Degree. This is a sample from one of our Core Guides. We also offer dedicated Case Books. Please visit lawanswered.com if you wish to purchase a copy. Notes for the LPC are also available via lawanswered.com. This chapter is provided by way of sample, for marketing purposes only. It does not constitute legal advice. No warranties as to its contents are provided. All rights reserved. Copyright © Answered Ltd. PRIVITY KEY CONCEPTS 5 DOCTRINE OF PRIVITY Under the common law: A third party cannot… enforce , be liable for, or acquire rights under … a contract to which he is not a party. AVOIDING THE DOCTRINE OF PRIVITY The main common law exceptions are: AGENCY RELATIONSHIPS ASSIGNMENT TRUSTS JUDICIAL INTERVENTION The main statutory exception is: CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 44 PRIVITY WHAT IS PRIVITY? “The doctrine of privity means that a contract cannot, as a general rule, confer PRIVITY rights or impose obligations arising under it on any person except the parties to it.” Treitel, The Law of Contract. Under the doctrine of privity: ACQUIRE RIGHTS UNDER A third party cannot BE LIABLE FOR a contract to which he is not a party. ENFORCE NOTE: the doctrine is closely connected to the principle that consideration must move from the promisee (see Consideration chapter). The leading cases on the classic doctrine are Price v Easton, Tweddle v Atkinson and Dunlop Pneumatic Tyre Co Ltd v Selfridges & Co Ltd. -
Legal Position Agreement with Personal Guarantee at Bank Medan Branch
Legal Position Agreement with Personal Guarantee at Bank Medan Branch Vincent Leonardo Tantowie, Willy Tanjaya, and Herman Brahmana, Elvira Fitriyani Pakpahan Magister of Notary, Universitas Prima Indonesia, Jl. Sekip Simpang Sikambing, Medan, Indonesia Keywords: Legal Agreement, Guarantee and Personal Guarantee. Abstract: In providing credit facilities, all banks always refer to the Loan to Value of the credit value. The value of the collateral provided is in the form of material guarantees, whether installed on a KPR, KPR, Fiduciary basis or Pawn and Cessie. If there is a lack of guarantee value that is relaxed by the internal and external assessment team, the Bank always asks for additional guarantees in the form of personal guarantees (personal guarantees) or company guarantees (company guarantees). This must be watched out for by bankers or legal officers of a finance company where if a company or individual has provided personal guarantees for a debt from a certain debtor, then it must be given strict provisions, that the guarantor must also be accompanied by a material guarantee. 1 INTRODUCTION this note, attention is paid to the importance of structuring the details of claims and the Banks as a company engaged in finance, all banking consequences for which employee claims are activities are always related to the financial sector, formulated incorrectly. Possible solutions available so talking about banks is inseparable from financial to employees in terms of both general law and problems. Banking activities that are the first to raise statutory are investigated (Barnard, 2010). If we funds from the wider community known as banking look deeper into the business activities of banks, in activities are funding activities. -
Contract of Guarantee for Non-Shareholder Loans Between
CONTRACT NO. <00000> FORM For information purposes Contract of Guarantee for Non-Shareholder Loans Non-Honoring of a Sovereign Financial Obligation between the Multilateral Investment Guarantee Agency and [Guarantee Holder] This draft document is subject to MIGA’s approval and as such cannot be considered a contract or an offer to enter into a contract. Only the document executed by MIGA, as approved by MIGA’s senior management and the Guarantee Holder, will contain the terms and conditions that shall bind them. Until this document is executed by MIGA and the Guarantee Holder, neither MIGA nor the Guarantee Holder intends to be bound by its terms and conditions. The terms and conditions of this draft document are distributed to the Guarantee Holder on a confidential basis. [2016 FORMS – OCTOBER 2016] CONTRACT OF GUARANTEE FOR NHSFO CONTRACT NO. <00000> Contract of Guarantee for Non-Shareholder Loans Non-Honoring of a Sovereign Financial Obligation Table of Contents Part I – Special Conditions .............................................................................................................. 1 Part II – General Conditions ............................................................................................................ 5 Article 1. Application and Interpretation .................................................................................... 5 Article 2. Definitions .................................................................................................................. 5 Article 3. Non-Honoring of a Sovereign -
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. -
Derivative Securities, Fall 2012 – Homework 3. Distributed 10/10
Derivative Securities, Fall 2012 { Homework 3. Distributed 10/10. This HW set is long, so I'm allowing 3 weeks: it is due by classtime on 10/31. Typos in pbm 3 (ambiguity in the payoff of a squared call) and pbm 6 (inconsistent notation for the dividend rate) have been corrected here. Problem 1 provides practice with lognormal statistics. Problems 2-6 explore the conse- quences of our formula for the value of an option as the discounted risk-neutral expected payoff. Problem 7 makes sure you have access to a numerical tool for playing with the Black-Scholes formula and the associated \Greeks." Problem 8 reinforces the notion of \implied volatility." Convention: when we say a process Xt is \lognormal with drift µ and volatility σ" we mean 2 ln Xt − ln Xs is Gaussian with mean µ(t − s) and variance σ (t − s) for all s < t; here µ and σ are constant. In this problem set, Xt will be either a stock price or a forward price. The interest rate is always r, assumed constant. (1) Suppose a stock price st is lognormal with drift µ and volatility σ, and the stock price now is s0. (a) Give a 95% confidence interval for sT , using the fact that with 95% confidence, a Gaussian random variable lies within 1:96 standard deviations of its mean. (b) Give the mean and variance of sT . (c) Give a formula for the likelihood that a call with strike K and maturity T will be in-the-money at maturity. -
Federal Tort Claims Act II
Federal Tort Claims Act II In This Issue Using the “Private Individual Under Like Circumstances” to Your Advantage: The Analogous Private Liability Requirement Under the January Federal Tort Claims Act . 1 2011 By Adam M. Dinnell Volume 59 Number 1 The Federal Tort Claims Act is a Very Limited Waiver of Sovereign United States Immunity – So Long as Agencies Follow Their Own Rules and Do Not Department of Justice Executive Office for Simply Ignore Problems . 16 United States Attorneys Washington, DC By David S. Fishback 20530 H. Marshall Jarrett Director Jurisdiction Limits on Damages in FTCA Cases . 31 By Jeff Ehrlich Contributors' opinions and statements should not be considered an endorsement by EOUSA for any policy, program, The Benefit of Proving Benefits – Avoiding Paying Twice For the Same or service. Injury Under the FTCA . .35 The United States Attorneys' Bulletin is published pursuant to 28 By Conor Kells CFR § 0.22(b). The United States Attorneys' Defending Wrongful Death and Survival Claims Brought Under the Bulletin is published bimonthly by the Executive Office for United Federal Tort Claims Act . 41 States Attorneys, Office of Legal Education, 1620 Pendleton Street, By Jamie L. Hoxie Columbia, South Carolina 29201. Managing Editor The United States’ Waivers of Sovereign Immunity in Admiralty . .46 Jim Donovan By Peter Myer Law Clerks Elizabeth Gailey Carmel Matin Researching the Legislative History of the Federal Tort Claims Act . .52 Internet Address By Jennifer L. McMahan and Mimi Vollstedt www.usdoj.gov/usao/ reading_room/foiamanuals. html Send article submissions and address changes to Managing Editor, United States Attorneys' Bulletin, National Advocacy Center, Office of Legal Education, 1620 Pendleton Street, Columbia, SC 29201. -
The Constitutional Status of Tort Law: Due Process and the Right to a Law for the Redress of Wrongs
TH AL LAW JORAL JOHN C.P. GOLDBERG The Constitutional Status of Tort Law: Due Process and the Right to a Law for the Redress of Wrongs A B ST RACT. In our legal system, redressing private wrongs has tended to be the business of tort law, itself traditionally a branch of the common law. But do individuals have a "vested interest" in law that redresses wrongs? If so, do state and federal governments have a constitutional duty to provide that law? Since the New Deal era, conventional wisdom has held that individuals do not possess such a right, and consequently, government bears no such duty. In this view, it is a matter of unfettered legislative discretion- "whim" -whether or how to provide a law of redress. This view is wrongheaded. To be clear: I do not argue that individuals have a property-like interest in a particular corpus of tort rules. The law of tort is always capable of improvement, and legislatures have an obligation and the requisite authority to undertake such improvements. Nonetheless, I do argue that tort law, understood as a law for the redress of private wrongs, forms part of the basic structure of our government. And though the Constitution does not confer on any particular individual a right to a specific version of tort rules, all American citizens have a right to a body of law for the redress of private wrongs that generates meaningful and judicially enforceable limits on tort reform legislation. A UT HO R. John C.P. Goldberg is Associate Dean for Research and Professor, Vanderbilt Law School. -
Permitting Recovery for Pre-Impact Emotional Distress Kathleen M
Boston College Law Review Volume 28 Article 2 Issue 5 Number 5 9-1-1987 When Circumstances Provide a Guarantee of Genuineness: Permitting Recovery for Pre-Impact Emotional Distress Kathleen M. Turezyn Follow this and additional works at: http://lawdigitalcommons.bc.edu/bclr Part of the Torts Commons Recommended Citation Kathleen M. Turezyn, When Circumstances Provide a Guarantee of Genuineness: Permitting Recovery for Pre-Impact Emotional Distress, 28 B.C.L. Rev. 881 (1987), http://lawdigitalcommons.bc.edu/bclr/vol28/iss5/2 This Article is brought to you for free and open access by the Law Journals at Digital Commons @ Boston College Law School. It has been accepted for inclusion in Boston College Law Review by an authorized editor of Digital Commons @ Boston College Law School. For more information, please contact [email protected]. WHEN CIRCUMSTANCES PROVIDE A GUARANTEE OF GENUINENESS: PERMITTING RECOVERY FOR PRE-IMPACT EMOTIONAL DISTRESSt Kathleen M. Turezyn* I. INTRODUCTION "Uh-Oh"' That fateful phrase was uttered by pilot Michael J. Smith at almost the same instant that the space shuttle "Challenger" exploded before the eyes of the unsuspecting NASA ground control crew, the families and friends of the astronauts invited to watch the launch, and television viewers who had just witnessed another apparently successful space launch. It was the last communication by a member of the crew, 2 and suggests that at least one of the astronauts was aware of an impending disaster.' Evidence produced by an investigation of the explosion appears to support the conclusion that the crew survived the explosion in space only to find themselves trapped in the crew module as it fell toward earth and its ultimate destination deep in the Atlantic Ocean.