China’s Black Monday and Volatility of Swap Margin
We all know that the Shanghai Composite Index has seen massive volatility with the media dubbing August 24th as China’s Black Monday with the Index falling 8.5% and then a further 7.6% on the 25th. So I thought it would be interesting to look at how a USD Interest Rate Swap trade performed over this […]
Principal Component Analysis of the Swap Curve: An Introduction
Principal Component Analysis (PCA) is a well-known statistical technique from multivariate analysis used in managing and explaining interest rate risk. Before applying the technique it can be useful to first inspect the swap curve over a period time and make qualitative observations. By inspection of the swap curve paths above we can see that; 1. […]
CCP Default Management Process and the SwapClear Fire Drill
There has been a lot written in the press about the increased importance of Central Counterparties (CCPs) and the cash and capital resources available in the event of member defaults. A CCPs Default Management Process (DMP) documents the steps to be taken in the event of a member default. These are designed to utilise the defaulting members margin to […]
Swap Equivalents via Waves
In a recent paper, “Calculating Delta Risks and Hedges via Waves (2015)“, Hagan deals with an old practical problem–determining risk and hedges on an interest rate book. In older systems a delta hedge report is often implemented by perturbing quotes used to construct the yield curves, restripping the curves and then revaluing the book. As […]
Client Portfolios will Dominate CCP Risk
Using Client Open Interest figures we can project the share of CCP portfolio risk due to Clients once Clearing reaches a mature state. This will take several years as legacy non-cleared Rates portfolios (which dominate global notional outstanding) need to run off and be replaced by cleared trades under the US, EU and Asia client clearing mandates. However, […]
Can SPAN Margin for Futures be higher than HistSim Margin?
Following on from my article on Portfolio Cross-Margining of Swaps and Futures, I wanted to take a more detailed look into the Initial Margin of Interest Rate Futures. In this article I will compare SPAN with Historical Simulation and check whether SPAN margin is always lower than HistSim margin, which is what we would expect given […]
Portfolio Cross-Margining of Swaps and Futures
We often get asked about Cross-Margining of Swaps and Futures, as well as SPAN margin for Futures. In this article I will introduce the benefits of cross-margining, using a few simple examples and the CME Clearing model. As this is my first article on this topic, I will endeavour to keep it as simple as possible […]
HFT in the Swaps market – it’s a good thing!
I thought it was very interesting this week that Commissioner Giancarlo mentioned the potential emergence of HFT in the swaps trading landscape. From a quick read of his remarks, it sounds like he is not a great supporter of continuous CLOB trading as the only mode of swap execution. But what if enabling HFT in […]
Initial Margin and Swap Pricing
Welcome to 2015 everyone! I thought I’d start the year with some simple thoughts on Initial Margin, before later applying these to what may (or may not!) be charged when dealers quote on a compression run that we identified using the SDRView Pro API. Initial Margin Basics As Amir has covered in a number of […]
Margin Games 2014
2014 So, it’s that time of year when we look back at 2014, the year that was. We go through the (painful) year-end reviews, give the year a mark out of 10 if you must. Think about all of the tail events you’ve traded through during the year. Those once-in-10,000-lifetime events that seem to occur at least […]