Learning Curve

Convertible bonds in China have recently become popular among Chinese issuers and foreign investors.

At the end of July, the International Index Company launched the Dow Jones iTraxx Credit Default Swap Index for Australia.

On Nov. 27, 2001 the International Swaps and Derivatives Association circulated the first draft of a new version of the ISDA Master Agreement (the 2002 Agreement) to its members.

As part of its goal to streamline the process supporting over-the-counter equity derivatives trading by standardizing documentation, the International Swaps and Derivatives Association has published the Index Variance Swap Annex and the Share Variance Swap Annex (the Variance Annexes) for the interdealer market.

Models are playing greater role in senior management actions.

Last week we introduced the Composite Basket Model (or CBM) and discussed its implementation. This week we present some of the results obtained with the CBM and discuss how to calibrate and price with this model.

In this paper, we propose a new methodology for quoting loss baskets and potentially diversified first-to-default baskets in a consistent manner that overcomes the problems associated with Gaussian copula models.

Following a front page story in Derivatives Week, this article goes into more detail about the recent decision of the New South Wales Supreme Court in Enron Australia Vs. TXU Electricity [2003] NSWSC 1169.

Over the past decade, collateral has become an increasingly significant tool in the over-the-counter derivatives market, with the International Swaps and Derivatives Association estimating there is some USD1.017 trillion in use and expectations that volumes will continue to increase.

"Three bites at the apple is enough." So said District Judge Lawrence McKenna in his decision against hedge fund Eternity in June 2003 when deciding in favor of JPMorgan that the second amended complaint of Eternity should be dismissed.

As the credit-default swap market matures, more and more names trade with significant liquidity across the entire range of tenors away from the traditional five-year point.

Without a crystal ball, and given the breadth of transactions that can be entered into between parties to an International Swaps and Derivatives Association Master Agreement, it is almost impossible to predict whether a particular provision will benefit one party or the other.