121,438 research outputs found
Consistent Valuation Across Curves Using Pricing Kernels
The general problem of asset pricing when the discount rate differs from the
rate at which an asset's cash flows accrue is considered. A pricing kernel
framework is used to model an economy that is segmented into distinct markets,
each identified by a yield curve having its own market, credit and liquidity
risk characteristics. The proposed framework precludes arbitrage within each
market, while the definition of a curve-conversion factor process links all
markets in a consistent arbitrage-free manner. A pricing formula is then
derived, referred to as the across-curve pricing formula, which enables
consistent valuation and hedging of financial instruments across curves (and
markets). As a natural application, a consistent multi-curve framework is
formulated for emerging and developed inter-bank swap markets, which highlights
an important dual feature of the curve-conversion factor process. Given this
multi-curve framework, existing multi-curve approaches based on HJM and
rational pricing kernel models are recovered, reviewed and generalised, and
single-curve models extended. In another application, inflation-linked,
currency-based, and fixed-income hybrid securities are shown to be consistently
valued using the across-curve valuation method.Comment: 56 page
Accounting for financial instruments in the banking industry : [Version Juli 2002]
Recent changes in accounting regulation for financial instruments (SFAS 133, IAS 39) have been heavily criticized by representatives from the banking industry. They argue for retaining a historical cost based "mixed model" where accounting for financial instruments depends on their designation to either trading or nontrading activities. In order to demonstrate the impact of different accounting models for financial instruments on the financial statements of banks, we develop a bank simulation model capturing the essential characteristics of a modern universal bank with investment banking and commercial banking activities. In our simulations we look at different scenarios with periods of increasing/decreasing interest rates using historical data and with different banking strategies (fully hedged; partially hedged). The financial statements of our model bank are prepared under different accounting rules ("Old" IAS before implementation of IAS 39; current IAS) with and without hedge accounting as offered by the respective sets of rules. The paper identifies critical issues of applying the different accounting rules for financial instruments to the activities of a universal bank. It demonstrates important shortcomings of the "Old" IAS rules (before IAS 39), and of the current IAS rules. Under the current IAS rules the results of a fully hedged bank may have to show volatility in income statements due to changes in market interest rates. Accounting results of a partially hedged bank in the same scenario may be less affected even though there are economic gains or losses
TumbleBit: an untrusted Bitcoin-compatible anonymous payment hub
This paper presents TumbleBit, a new unidirectional unlinkable payment hub that is fully compatible with today s Bitcoin protocol. TumbleBit allows parties to make fast, anonymous, off-blockchain payments through an untrusted intermediary called the Tumbler. TumbleBits anonymity properties are similar to classic Chaumian eCash: no one, not even the Tumbler, can link a payment from its payer to its payee. Every payment made via TumbleBit is backed by bitcoins, and comes with a guarantee that Tumbler can neither violate anonymity, nor steal bitcoins, nor print money by issuing payments to itself. We prove the security of TumbleBit using the real/ideal world paradigm and the random oracle model. Security follows from the standard RSA assumption and ECDSA unforgeability. We implement TumbleBit, mix payments from 800 users and show that TumbleBits offblockchain payments can complete in seconds.https://eprint.iacr.org/2016/575.pdfPublished versio
The Zeeman Effect in Finance: Libor Spectroscopy and Basis Risk Management
Once upon a time there was a classical financial world in which all the
Libors were equal. Standard textbooks taught that simple relations held, such
that, for example, a 6 months Libor Deposit was replicable with a 3 months
Libor Deposits plus a 3x6 months Forward Rate Agreement (FRA), and that Libor
was a good proxy of the risk free rate required as basic building block of
no-arbitrage pricing theory. Nowadays, in the modern financial world after the
credit crunch, some Libors are more equal than others, depending on their rate
tenor, and classical formulas are history. Banks are not anymore too "big to
fail", Libors are fixed by panels of risky banks, and they are risky rates
themselves. These simple empirical facts carry very important consequences in
derivative's trading and risk management, such as, for example, basis risk,
collateralization and regulatory pressure in favour of Central Counterparties.
Something that should be carefully considered by anyone managing even a single
plain vanilla Swap. In this qualitative note we review the problem trying to
shed some light on this modern animal farm, recurring to an analogy with
quantum physics, the Zeeman effect
The Campus Debit Card Trap: Are Bank Partnerships Fair to Students?
Examines partnerships between colleges and financial firms on campus ID, prepaid, debit, and financial aid disbursement cards and questions about fees, aggressive marketing strategies, and consumer protection. Lists best practices and recommendations
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