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Following the introduction of the new market risk capital requirements recommended by the Basle Committee, this article will address some concerns raised about the methods of calculating the capital charges.

In this issue, Johan G.B. Beumée, a partner in Riskcare Limited, and Paul Wilmott, professor of mathematics from Imperial College London, present some approximations of the warrant pricing method introduced in a previous Learning Curve (DW 1/12).

Options are prevalent in the world of finance and serve many functions.

Modeling the term structure of interest rates has always been linked with complex probability theory and technical jargon that can act as a deterrent to exploring the world of derivative pricing.

In common with many currencies, the Mexican peso used to be pegged to the dollar.

The volatility swap can be viewed as a logical next step in the application of derivatives to portfolio management.

There is no particular value at which a foreign exchange rate is stable.

The discussion in part one of this Learning Curve (DW, 2/2) has shown that it is possible to obtain a significant terminal de-correlation amongst rates even in the presence of perfect instantaneous correlation.

In a previous learning curve (DW, 1/5), we introduced a notion of convexity cost in the option adjusted valuation.

The consistent pricing of derivative products involving the joint realizations of a collection of forward rates requires the specification of the covariance matrix between the various underlying rates.

As its name suggests, risk-adjusted return on capital analysis (RAROC) is a method for factoring risk into the computation and evaluation of financial returns.

A vast amount of effort is spent upon producing complex market models.