Risk Management, Speculation, and Derivative Securities by Geoffrey Poitras

By Geoffrey Poitras

Its unified remedy of spinoff defense functions to either danger administration and speculative buying and selling separates this booklet from others. featuring an built-in clarification of speculative buying and selling and danger administration from the practitioner's viewpoint, possibility administration, hypothesis, and by-product Securities is the one usual textual content on monetary danger administration that departs from the viewpoint of an agent whose major matters are pricing and hedging derivatives. After providing a common framework for hazard administration and hypothesis utilizing by-product securities, it explores particular functions to ahead contracts and techniques. now not meant as a complete advent to spinoff securities, probability administration, hypothesis, and spinoff Securities is the leading edge, worthy strategy that addresses new advancements in derivatives and chance administration. *The simply average textual content on monetary probability administration that departs from the point of view of an agent whose major matters are pricing and hedging derivatives*Examines speculative buying and selling and probability administration from the practitioner's element of view*Provides an cutting edge, important procedure that addresses new advancements in derivatives and danger administration

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Such events induce a state of uneasiness among policymakers, corporate managers, investment professionals, even academics. While it is tempting to draw glib generalizations about the apparent misunderstanding of risk-management practices, closer inspection reveals a decidedly more complicated battle®eld. 2 billion Silver futures Silver futures Swaps Currency options and forwards Energy derivatives Copper futures Currency derivatives Leveraged swaps Mortgage derivatives Swaps Reverse repos Stock index futures and options Copper futures Stock index futures and options Numerous positions in various markets Gold exotic derivatives Energy derivatives Source: Chance (1998), Jorion (2001), Williams (1995), McCarthy (2000).

The three general types of margin requirements are (1) clearinghouse margins, (2) exchange (but not 18 The discussion of margins focuses on futures. , Goldberg, Lawrence, and Hachey, 1992; Telser, 1981). For forward contracts, margins can appear in various guises, often as a ``haircut'' requirement that requires the posting of some fraction of the principal value of the contract. However, there is substantial variation of margining practices in the forward market, both across commodities and, in some cases, for forward contracts traded on the same commodity.

With the agreement of the counter-party, the forward agreement could be structured to have variation in the allowable grades and amounts or to be transferable under certain conditions. For forward agreements that do not contain such conditions, the best method of offsetting the forward position may be to engage in cash market transactions on the delivery date. For example, a metal re®nery that has a forward contract to deliver copper cathodes but, for some reason, is unable to make delivery from current production, can enter the cash market for cathodes and purchase the copper necessary to settle the contract.

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