Articles

  • Britain just became the slowest-growing major economy in the world
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  • Nela Richardson Sees Slim Inventory for U.S. Home Buyers
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  • Credit Suisse AG – Velocityshares Daily 2X <b>Vix</b> Sho (NASDAQ:TVIX) Shorts Decreased by 4.3 ...
    on May 14, 2014, also Benzinga.com with their article: “'Busiest Trading Day Ever': Brokerages, Retail Clients React To Volatility” published on February 06, 2018, Investorplace.com published: “VelocityShares Daily 2x VIX Short Term ETN (TVIX): The Quick Guide to TVIX” on September 20, 2017.Read more Derivative Valuation
  • Correlation Breakdown
    The US equity market just reached new highs, and it broke many records.  For example, Bloomberg reported that the US market had not been overbought like this in 21 years. The S&P 500 Index’s superlative start to 2018 is making a contrarian technical indicator look silly. The benchmark gauge is poised to end trading Thursday with a 16th straight day in overbought territory, as judged by the Relative Strength Index. That would be the longest such run in more than two decades. A close above 70 on Thursday passes the 15-session string seen in October. From Nov. 6 through Dec. 2, 1996, the gauge’s overbought streak reached 18 sessions. Read more The rare behavior of the equity index not only manifested itself in the overbought level, but also in the breakdown of correlation. The chart below shows the 20-day rolling correlation (upper panel) between the SPX and the volatility index, VIX. Usually, the correlation is negative, in the order of -0.79. However, it has been in the positive territory for more than a week now. [caption id="attachment_449" align="aligncenter" width="628"] SPX and VIX correlation as at Jan 26 2018. Source: Stockcharts.com[/caption] We notice that there has been a breakdown in the Nikkei stock market and USDJPY correlation as well. The chart below shows the USDJPY (upper panel) and the Nikkei 225 equity index (lower panel). The relationship was usually positive. But since November of last year, it broke down: a stronger Japanese Yen did not lead to a weaker equity market and vice versa.   [caption id="attachment_450" align="aligncenter" width="628"] Nikkei 225 and USDJPY as at Jan 26 2018. Source: Stockcharts.com[/caption] For the moment, we are not going to delve deeper into the reasons behind these correlation breakdowns. We note, however, that if correlations don’t revert back to normal within a reasonable time frame, then there might be a shift in the market fundamentals. Post Source Here: Correlation Breakdown Read more Derivative Valuation
  • A startup that wants to better understand the relationship our gut has to our brain just raised $66 million
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  • Liquidity Risk and Exchange Traded Funds
    The sell-off in the high yield bond Exchange Traded Funds space last month reminds us of an important risk factor: liquidity. But what exactly is liquidity risk? According to Aleksander Kocic, derivatives strategist at Deutsche Bank AG, Liquidity transforms the risk of default (the ability that the debtor may not be able to pay back his debt) into the risk that the securities representing the debt find no purchasers ... today’s era of booming bond sales has an eerie parallel to the subprime crisis of the mid-2000s. Back then, low interest rates spurred an intense search for yield that culminated in investors purchasing risky home loans in the form of securitized and salable bonds. Such securitizations had the benefit of convenience as investors could buy and sell specific exposures comprising hundreds of thousands of individual home loans. The forced unwind of leverage was responsible for the transformation of conditional insolvency to unconditional illiquidity. Read more [caption id="attachment_436" align="aligncenter" width="561"] HYG High Yield Bond ETF as at Dec 22, 2017. Source: Interactivebrokers[/caption] With the recent proliferation of Exchange Traded Funds, there is no surprise that there exist ETFs that are supposedly designed to offer “liquidity transformation”, i.e. they would allow investors to buy and sell illiquid debt instantaneously. However, liquidity risk is still there, and those ETFs can actually exacerbate the risk. As for now, an important question to ask is: was the liquidity risk priced in? According to John Davi on Valuewalk, it is not, and 2018 can see an increase in liquidity risk. The markets, however, trade on the margin and 2018 will begin to see liquidity decline in the US. The Fed has started to raise rates, wants to hike more, and quantitative tightening will further reduce liquidity.  The repercussions are quite significant – especially on the margin. It is not surprising that liquidity sensitive asset classes such as US high yield credit, US Small Caps, and Japan corrected in October/November. Historically, liquidity in capital markets starts to decline in Q4 as banks begin to wind down their balance sheet ahead of year end.  Plus, we have the potential for another Fed rate hike in December.  The “liquidity based correction” was likely in anticipation of both events. Read more If liquidity deteriorates, portfolio managers can use liquid credit and/or volatility derivatives to hedge the risks. Article Source Here: Liquidity Risk and Exchange Traded Funds Read more Derivative Valuation
  • Derivative Valuation-How to Price a Convertible Bond
  • U.K. Economy Grew Below Expectations at 0.4% in 4Q
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  • Anglo American CEO Says Debt Reduction Remains Top Priority
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  • U.S. Two-Year Notes Yield 0.016% at $15B Auction
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  • 'This is blackmail' — Conservative MPs speak out about the Brexit war engulfing the party
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  • Exhausted Buyers Fail To Break Through The S&amp;P 500's Cloud
    The volatility index, the VIX, was on its way to continuing its implosion off this month's historic surge before sellers took control of the market. ... Combining the 50DMA resistance of the S&P 500 with the resilience of the VIX and the confirming reversal of AT40 forced me to downgrade my short-term ...Read more Derivative Valuation


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