TARF Pricing Models Our two part series on TARF pricing models begins where we stopped with our analysis on TARF hedge effectiveness. We cover both vanilla TARF (without any path dependent options) and Knock in Knock out (KIKO) TARF’s in that discussion. In this post
Dual Currency Deposits (DCD) are structured products that allow an investor to earn an increased interest rate as compared to the base rate that would be earned on a regular fixed term currency deposit. Besides the enhanced interest rate, the product is designed so that
Your challenge working as a treasury professional is to take this term sheet and turn it into this payoff profile. If you do this successfully, you would do exceedingly well because you would understand what the counterparty, what the competition sitting on the other side has done by combining A+B+C. You would read this structure and immediately know that they have taken one part A, one part B and one part C and have sold the customer something called D. But if you can’t this term sheet and translate it into this diagram then you will always be clueless about what exactly has gone into D. And if you are clueless about what has gone into D you can’t price it. If you can’t price it, you can’t value it. If you can’t value it, you can’t compete against it.
To summarize, the principle objective of estimating the amount at risk in each of these transactions is to determine how the transaction should be structured and what would be the impact of the structure on cost both out of pocket and explicit cost as well as implicit cost and what is the long range impact on the customer’s portfolio and profile of the structure that you have suggested.
August 2007 – October 2007: Goldman Sachs asks AIG to post additional collateral in view of the falling market value of CDO assets. The insurer posted around $2 billion in collateral up to end-October 2007. November 2007: AIG reports $352 million in unrealized losses on
AIG Financial Productions Corporation (AIG FP) a subsidiary of AIG issued and traded credit default swaps. These non-traditional insurance instruments insured the counterparty in the event of default on collateralized debt obligation payments. The company believed that the risk was very small because they primarily
February 2007: Lehman share price reaches all-time high of $86. 13th March 2007: Stock market suffers largest one-day drop in 5 years on reports that Lehman’s profitability would be significantly impacted because of rising subprime mortgage delinquencies. 14th March 2007: Lehman reports record revenues and
Between 2003 and 2004 Lehman Brothers acquired five mortgage lenders including the subprime originator BNC Mortgage LLC and Alt- A mortgage originator Aurora Loan Services. During the house price bubble these acquisitions contributed to Lehman achieving record revenues and becoming the fastest growing investment bank
Liquidity Risk Management: Bear Stearns Liquidity Run Case Study Timelines 20 December 2007: BS records 4th quarter loss, writes down mortgage assets of $1.9 billion. Sued by Barclays for misleading hedge fund performance 28 December 2007: Employees sell BS stock worth $ 20 million Early
Interest Rate Risk Repricing limits Repricing limits are set for interest rate management. These limits control exposure by controlling the volume or amount of securities that are repriced in a given time period. By staggering the repricing of the securities the company can reduce the