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This article provides real-world applications of equity derivatives in portfolio management, providing a practical approach that transcends the theoretical focus often found in academic literature and derivatives textbooks. The three primary applications include using stock index futures for effective liquidity management, employing cash equitization strategies with futures to optimize cash holdings, and utilizing options to assess and manage event-driven market risks. Each application provides detailed real-world cases, demonstrating how these derivatives serve as essential tools for portfolio managers in enhancing performance and aligning with strategic investment goals. [ABSTRACT FROM AUTHOR]

In this article, five in-depth illustrations of practical applications of various derivatives for risk control for asset management are provided. The illustrations are presented using stock index futures, interest-rate derivatives (Treasury futures and interest rate swaps), options, and equity swaps. The cases presented bridge the gap between theoretical finance and practical application, making it invaluable for those involved in risk management for portfolio managers. [ABSTRACT FROM AUTHOR]

It has become a consensus in the international community to actively address global climate change issues and strive to achieve carbon reduction. For this purpose, carbon finance market plays a significant role in reducing carbon emissions by providing financial mechanisms to support and incentivize emission reduction projects. As a type of carbon finance derivative, carbon swap is an agreement between two parties whereby a floating price is exchange for a fixed price for carbon emission right over a specified period. How to price carbon swap before signing, i.e., determine the fixed price in the swap contract, and valuate carbon swap during the life of the swap contract are key issues. Noting the fact that the underlying asset of carbon swap is carbon price, the primary task is to model carbon price reasonably. Due to the inherent challenges and uncertainties associated with pricing carbon, frequency stability is often not guaranteed, resulting in the failure of probability based methods. Thus, this paper characterizes the carbon price using uncertain differential equation under the framework of uncertainty theory, and derives swap pricing and valuation formulas. Estimations for unknown parameters in the proposed model are given. Finally, with carbon spot price in European Energy Exchange, real data analyses are documented to illustrate our proposed methods in details. [ABSTRACT FROM AUTHOR]

The Doomsday Book is a collection of documents and memoranda compiled by the legal department of the Federal Reserve Bank of New York (FRBNY). The book focuses on financial crises [...]

Developing countries, including Small Island Developing States (SIDSs) and Least Developed Countries (LDCs), are exceptionally vulnerable to climate change due to their distinct geographical and environmental characteristics. Escalating sea levels and heightened salinity levels imperil freshwater reserves, while warmer ocean temperatures and acidification disrupt water demand, tourism, health services, and fisheries. Concurrently, these countries bear the brunt of water shortages, flooding, and declining water quality. However, significant barriers such as limited financing capacities to fund water security initiatives, exacerbated by a growing debt crisis marked by escalating interest rates and inflation, hinder developmental progress and investments in climate adaptation and mitigation endeavors. Consequently, there arises a critical necessity to harness innovative financial mechanisms to transform these debts into opportunities that support effective climate action. This paper explores the potential of debt-for-climate swaps as a catalyst for advancing transformative wastewater projects, focusing on their strategic deployment to underpin critical initiatives. Through case studies and empirical evidence, the paper elucidates how debt-for-climate swaps can enhance sustainable wastewater management systems in developing countries and delineates best practices for leveraging these mechanisms and the roles and responsibilities of key stakeholders, including governments, policymakers, the private sector, communities, and climate financial institutions. Combining theoretical insights with tangible examples, this paper furnishes a comprehensive framework for harnessing debt-for-climate swaps to enhance water security and resilience in developing countries. It offers actionable strategies for policymakers, practitioners, and stakeholders to navigate the complex terrain of climate change and engender sustainable development. [ABSTRACT FROM AUTHOR]

We quantify the impact of risk‐based and nonrisk‐based intermediary constraints (IC) on the term structure of covered interest rate parity (CIP) violations. Using a stochastic discount factor (SDF) inferred from interest rate swaps, we value currency derivatives. The wedge between model‐implied and observed derivative prices reflects the impact of nonrisk‐based IC because our SDF incorporates risk‐based IC. There is no wedge at short horizons, while the wedge accounts for 40% of long‐term CIP violations. Consistent with IC theory, the wedge correlates with the shadow cost of intermediary capital, and the SDF‐implied interest rate is a weighted average of collateralized and uncollateralized interest rates. [ABSTRACT FROM AUTHOR]

A method based on successive adjustments of a discrete bivariate distribution consistently with target marginal distributions is presented, with the motivation of matching the correlation skew for rates and FX markets. Each step performs a permutation of the coordinates to achieve optimal pairing consistently with the spread or cross FX distribution, by ensuring minimal perturbation using the Hoeffding-Fréchet map, as inspired by the theory of optimal transport. A proof of convergence in the special case of evenly distributed coordinates (Monte Carlo simulations) is given using alternate projections onto discrete sets results, although a more efficient version of the algorithm is introduced and investigated with numerical examples. Numerous tests are presented for the convergence speed and calibration to Constant Maturity Swap spread options and cross FX markets. The method is compared with the copula method (used as a starting point of the algorithm), and the Austing model for the FX case, to value exotic payoffs. The robustness and efficiency of the method (it requires only sorting a vector of ℝN at each iteration) makes it easy to adapt in higher dimensions (equity markets) or to use as a tool to spot arbitrage in the rates market. [ABSTRACT FROM AUTHOR]

We decompose long-term nominal bond yields into real and inflation components in an international context using inflation-linked and nominal bonds. In contrast to extant results, real rate variation dominates the variation in inflation-linked and nominal yields. Cross-country nominal and inflation-linked yield correlations have declined since the Great Recession. Real rates are the main source of the correlation between nominal yields. Our results are robust to various alternative measurements of inflation expectations and the liquidity premium. They continue to hold when a no-arbitrage term structure model with real, nominal, and inflation factors is used to effect the yield decomposition. [ABSTRACT FROM AUTHOR]

The article highlights the resurgence of interest in hydrogen amidst soaring stock prices in other sectors, emphasizing the overlooked potential of hydrogen fuel cells. Topics discussed include the stock market's cyclic nature, the promising future of hydrogen economy, and the pivotal role of mature technology companies in the burgeoning hydrogen sector.

This article provides closed-form expressions for spatial Greeks (Delta and Gamma) for discretely monitored realized variance swaps under several common parametric model assumptions. The authors derive closed-form results for stochastic volatility and exponential Lévy models, as well as some approximations in the case of stochastic local volatility. The authors show that variance swap Greeks are inherently sensitive to model assumptions, and the common practice of ignoring the variance swap delta is not always appropriate. In particular, the Delta of a variance swap under a stochastic local volatility model can be quite significant under certain conditions, engendered by the local volatility skew, especially when the contract is close to inception and has many remaining observations. [ABSTRACT FROM AUTHOR]