Learning Curve
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The rand overnight deposit swap is a new single-tenor swap agreement introduced in the South African market last year.
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The prices of forwards, futures and options contain a great deal of information about what the market thinks or fears about future market conditions.
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When formulating investment strategies and assessing risk, traders and investors often make use of two quite different techniques: scenario analysis under specific market scenarios, and Monte Carlo simulation.
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Recently there has been lots of reported interest in the interest rate model of Brace, Gatarek, and Musiela (1997) (BGM), but anecdotal evidence suggests that it is proving difficult to implement.
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Accurate pricing of barrier options is a tricky business, and traditional lattice methods are ill-suited to the task.
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Last week's Learning Curve covered the fact that volatilities given by some data providers can not be taken at face value but have to be transformed to the required reference or accounting currency.
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A fundamental intuition provided by the Black-Scholes model is the principal of no arbitrage and the use of risk-neutral valuation for pricing derivative instruments.
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There are two fundamental approaches to valuing risky debt and associated instruments.
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When choosing risk management strategies, an institution should consider the trade-off between downside and upside potential.
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The default swap premium, floating-rate note and asset swap spreads reflect compensation required for bearing default risk.
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Though Indian entities are acquiring a greater awareness of hedging instruments for exchange rate and interest rate exposures, an active derivatives market has yet to develop.