Evolution of Over-The-Counter Derivatives and Associated Accounting Concerns
When OTC derivatives are transacted on a bi-lateral basis between end-users and dealers, dealers quote bids and offers and end-users essenti
Caps: Challenging the Conventional Wisdom that Caps are Too Expensive
As a starting point, it should be understood that a cap is nothing more than a series of options (caplets), where each caplet protects again
Hedging Bank Portfolios: Framing the Issue
To illustrate, consider a simplified example where a bank relies on monthly deposits as its primary funding source in connection with its ho
Comparing Apples and Oranges (and Pears)
Values for all of these three contract prices are dependent on the yield curve as of the date of the valuation, or more directly, on the con
Hedging Cross-Border Balance Sheet Exposures
As an alternative to using forward contracts, entities could also hedge
by buying currency options—calls on the nonfunctional currency to pr
Pros and Cons of Hedging Book Values
In the face of these uncertainties, many managers might want to base their decisions about when to hedge on consensus forecasts of market ex