The valuation of interest rate options is currently the most contested area of option- pricing theory. The problem stems from the fact that although there is a reasonable consensus about the nature of the stochastic process of share prices, equity indices and currencies, the movements in interest rates and interest rate dependent instruments are not fully understood and full agreement on the underlying process has yet to be reached.

The stochastic process of interest rates, and therefore the prices of interest rate dependent claims, has proved to be very difficult to model for a number of reasons. Read more »

Posted: June 17th, 2008 under Equity Futures, Future Broker, Futures Contracts, Futures Quotes, Managed Futures, Stock Market Futures, Swap Futures.
Comments: 4

Another new area of the swaps market is that of commodity swaps. The mechanics of these swaps are similar to interest rate swaps, in that the swap establishes a fixed commodity price and a floating commodity index, with which the fixed price can be compared. There is a notional principal physical quantity of the commodity which establishes the value of the periodic cash flows. To illustrate these mechanics and give some insight into the use of commodity swaps as risk management instruments, consider the following scenario regarding a manufacturer that is a substantial consumer of copper. Read more »

Posted: June 9th, 2008 under Commodities Futures, Future Broker, Future Exchange, Future Fund, Future Investing, Future Management, Future Trading, Futures Contracts, Futures Quotes, Futures Trader, Managed Futures, Swap Futures.
Comments: 5

Use of Derivatives by Investment Companies

As long as ICs comply with SEC regulations concerning asset coverage, there are no significant restrictions on their use of derivatives. However, an IC which uses derivatives more than just as a hedging strategy potentially faces the need to register with the CFTC as a CPO and may be required to comply with two different regulatory regimes.

Where an IC is registered with the SEC, its operator is not required to register with the CFTC as a CPO, if the IC enters into transactions in CFTC regulated derivatives for bona fide hedging purposes.

This exemption is dependent on the IC complying with the following conditions:

1. it commits no more than 5 per cent of its total net assets to initial margin and option premiums;

Read more »

Posted: February 9th, 2008 under Commodities Futures, Future Broker.
Comments: 5

A Limited Group of Investors

Usually, an exemption is available from public offer registration and disclosure requirements if the fund targets only professional investors. However, the definition of ‘professional investor’ varies and is not always precisely defined. Some countries also permit marketing to ‘sophisticated‘ investors or ‘members of a restricted circle’. Sophisticated investors are not usually defined at all and the interpretation of what constitutes sophisticated is more a matter of convention, left to the discretion of the authorities concerned. A ‘restricted circle’ usually means a group of persons who have some connection, for example, as members of a club or possibly clients of a bank or broker. Read more »

Posted: February 6th, 2008 under Future Broker, Future Fund, Future Investing, Future Management.
Comments: 4

Most managed futures funds have a CPO, an institutional fund manager, who in setting up the fund appoints either one or a selection of CTAs who actually advise on the management of the money. Some funds have a trading manager as well, a specialist who advises the CPO on the selection of the CTAs. The number of CTAs used within a fund differs, largely depending on fashion. Multi- adviser funds were considered, for a long while, to achieve diversification of risk and lower volatility. Now the fashion is coming back to single adviser funds again as mathematical systems of trading become more complex. CPOs are also responsible for organising the back-office administration of a fund, the trustee and custodian functions, the marketing and sales of the fund and so on. While this is always extremely important in the working of a fund, it is particularly important in managed futures funds where supervision of margin or premium is essential to controlling a fund’s exposure to risk. Read more »

Posted: February 4th, 2008 under Future Broker, Future Fund, Managed Futures.
Comments: 4

Before the advent of managed futures funds in Europe, many European countries—but particularly the UK—suffered the attentions of unscrupulous and largely unregulated futures brokers. These unprofessional operators encouraged retail investors to open their own trading accounts, through which either the vicissitudes of the futures markets or the inflated nature of the brokers’ fees usually managed to ensure that the investors lost most of their money. Many of these unregulated practitioners arrived in Europe from the US, where the strict regulatory regime established by the Securities and Exchange Commission (SEC) or the CFTC had chased them out. The UK and continental Europe also managed to grow a few of their own cowboys.

Gradually, the introduction of a stronger regulatory regime across Europe and the growth of well-regulated managed futures funds — supported by their trade associations—have largely pushed the cowboys out of the forefront of the industry and out of existence, or into less well-regulated centres. Read more »

Posted: February 1st, 2008 under Future Broker, Future Fund, Future Investing, Futures Market, Managed Futures.
Comments: 6

This type of fee on a fund in Europe can be represented either in a bid/offer spread on the fund’s unit price, which means that the introductory commission is anything between 2 per cent and 8 per cent, or it can take the US mutual fund route and be charged at the back of the fund. If the money to cover this fee does not come out of the bid/offer spread, it is usually paid for out of the brokerage commission or management fees. Read more »

Posted: January 31st, 2008 under Future Broker, Future Investing, Future Management, Managed Futures.
Comments: 5

DEMOGRAPHIC CHANGE AND AGEING POPULATIONS

In Europe as a whole, one of the greatest features of demographic change over the last century has been the dramatic increase in life expectancy. Currently, one third of the population of Europe is over 50 years old. For the financial industry, the result has been that the pension industry in particular is looking for more return on the capital it has under management.

With people generally living longer on less capital, actuaries within pension fund groups need to find routes for greater returns on money under management and many are more prepared to look at derivatives than they have been in the past. While many actuaries or pension consultants may consider looking towards derivatives for added returns the last action of desperate men, they are at least looking—which is a vast step forward.

For any manager of institutional money who is looking Read more »

Posted: January 24th, 2008 under Future Broker, Future Exchange, Future Management, Futures Quotes, Futures Trader, Managed Futures.
Comments: 5