Interest-rate caps, collars, and floors
The impact of a dealer's failure on OTC derivatives market liquidity during volatile periods
This paper develops a model in which information losses may be an important part of the cost of an OTC derivatives dealer's failure. A dealer failure forces solvent counterparties of a failed dealer to seek replacement hedges with other dealers. However, by forcing good firms into the derivatives market, the failure provides camouflage for insolvent firms seeking to speculate with a dealer that does not know their credit status. The paper models this information loss and uses the model to quantitatively evaluate a range of scenarios. The results suggest that a market breakdown is unlikely but ...
Options and volatility
Because volatility of the underlying asset price is a critical factor affecting option prices and hedge ratios, the modeling of volatility and its dynamics is of vital interest to traders, investors, and risk managers. This modeling is a difficult task because the path of volatility during the life of an option is highly unpredictable. There has been a proliferation of volatility specifications since the original, simple constant-volatility assumption of the famous Black and Scholes option pricing model. This article gives an overview of different specifications of asset price volatility that ...
An introduction to portfolio insurance
An abstract for this article is not available.
Covered call options: a proposal to ease LDC debt
Over-the-counter financial derivatives: risky business?