New: The Hong Kong Linked Rate Mechanism: Monetary Lessons for Economic Development
Date Posted: Jan 26, 2013
A currency board is a monetary institution that issues notes and coins which are fully convertible into a reserve currency at a fixed rate on demand. Reserves are equal to 100 per cent, or slightly more, of a board’s notes and coins. There have been over seventy currency boards and all have maintained convertibility, even during civil wars. Although successful, currency boards fell victim to changing economic fashions, and most were replaced by central banks after World War II. Hong Kong has o
New: Derivative Dingbats
Date Posted: Jan 25, 2013
The real story behind the Metallgesellschaft fiasco: What you don't know can hurt you.
New: Pummeling Derivatives
Date Posted: Jan 23, 2013
During the past year, the press has had a field day pummeling “derivatives.” The Wall Street Journal has even joined in the fun. The grist for the journalists’ mills has been provided by the big losses on derivatives reported by Metallgessellschaft, Proctor & Gamble, Air Products, Gibson Greeting Cards, Piper Jaffray, and the like.
Derivatives also have not gone unnoticed by the armies of legislative beavers who inhabit the environs of Washington, D.C. Even though over a dozen studies –
New: Derivative Diagnosis
Date Posted: Jan 23, 2013
Not all derivative disasters are created equal, say these experts.
New: Empire of the Sun: An Economic Interpretation of Enron's Energy Business
Date Posted: Jan 23, 2013
The collapse of Enron Corporation has been portrayed as the result of accounting fraud and greed. Not everything that Enron did, however, was wrong or fraudulent. Fraud contributed to the timing of Enron's failure but was not the root cause of that failure. In analyzing Enron, it is critically important to distinguish what Enron did wrong from what it did right.
REVISION: Financial Transaction Taxes: Benefits and Cost
Date Posted: Mar 28, 2012
Proponents of financial transaction taxes (“FTTs”) claim that such taxes will raise revenue and discourage “destabilizing speculation.” Opponents of FTTs claim that they are unlikely to achieve their stated goals and that FTTs will harm the performance of financial markets by reducing market depth and liquidity, increase market volatility, put downward pressure on asset prices, increase the costs of raising capital, and diminish the international competitiveness of the U.S. financial services in
REVISION: Catastrophe Reinsurance and Risk Capital in the Wake of the Credit Crisis
Date Posted: Aug 25, 2009
In 2008, the property and casualty insurance industry was adversely affected by significant natural catastrophe-related losses, floundering investments, and limited access to capital markets. Catastrophe reinsurance premiums have risen and capacity has shrunk. Especially at such times, risk capital is an essential component of a P&C insurer’s economic balance sheet. In this article we review the similarities and differences between internal risk capital (provided by investors in insurance compan
REVISION: The Treasury Department's Proposed Regulation of OTC Derivatives Clearing & Settlement
Date Posted: Aug 25, 2009
In the wake of the ongoing credit crisis, policy makers are considering whether the regulation of over-the-counter (OTC) derivatives could help avert another such crisis and taxpayer-financed bailout. In particular, the Treasury Department has proposed to subject OTC derivatives to comprehensive regulation and to mandate the exchange trading and central counterparty clearing and settlement of standardized OTC derivatives. This paper explores the regulatory, operational, and economic aspects of t
New: Returns, Risk, and Financial Due Diligence
Date Posted: Aug 04, 2009
Financial due diligence is the process by which investors try to ascertain, among other things, the potential risks and returns of a contemplated investment. Both qualitative and quantitative methods are used to determine whether the investment offers a fair risk/return tradeoff (and what that tradeoff is). In this paper, we first review basic concepts of risk and return in financial economics with an eye toward the quantitative aspects of financial due diligence. We then illustrate the applicat
New: Structured Financing Techniques in Oil & Gas Project Finance: Future Flow Securitizations, Prepaids,
Date Posted: Jul 16, 2009
Structured financing techniques in oil-and-gas-related project finance have grown more popular over the past several decades. Securitization, in particular, has played an important role in project finance by increasing oil and gas sponsors’ access to affordable financing from the capital markets and helping banks refinance their project loan exposures. We review the economic benefits of using structured finance techniques in oil & gas project finance, and we explain and provide examples of sever
New: Naked Shorting
Date Posted: Apr 30, 2007
A "naked short sale" is a short sale of stock in which the seller does not own the shares and essentially has no plans to acquire the stock by the settlement date. We review the standard economic arguments for and against the speculative short sale of equities and explain the strong economic similarities between permissible short selling and impermissible naked short selling. Despite the legal prohibitions on the latter, we show that, from an economic perspective, naked shorting is not fundamen
The Uses and Abuses of Finite Risk Reinsurance
Date Posted: Jul 27, 2005
Finite risk has become what derivatives were ten years ago - a hot button for controversy and the likely subject of investigations, litigation, and new regulations. Our objective is to provide a general introduction to finite risk (or just "finite," as it is known in the trade). We begin with a brief overview of the structured insurance market. Finite risk solutions are a part of that market. We then describe the kind of risk management problems that lend themselves to finite risk solutions. Nex