Replacement costs add to OTC pricing upheaval
Dealers do not often ask regulators to intervene in the derivatives markets, but faced with an insoluble pricing headache, and no way to defend themselves, they’re seeking help. And some clients are now asking whether the market has simply become too complex. By Matt Cameron
As dealers have slid down the ratings spectrum in recent years, options the industry gave away for free when in better health have become painfully relevant, forcing banks to confront the latest in a long line of post-crisis pricing challenges – the replacement valuation adjustment (RVA). It may be a challenge too far.
“They’re horrible,” says the head of rates trading at one large European bank. “We have no idea how to price them or manage the risk associated with them. All I know is that if we
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Markets
Credit determinations review proposes independent members
Isda AGM: Linklaters unveils key recommendations for CDS committee overhaul
Saudi Arabia poised to become clean netting jurisdiction
Isda AGM: Netting regulation awaiting final approvals from regulators
Buy side looks to fill talent gap in yen rates trading
Isda AGM: Japan rate rises spark demand for traders; dealers say inexperience could trigger volatility
JP Morgan’s new way to trade FX overlays
Hybrid execution method allows clients to put dealers in competition via a single trading agreement
Pension funds eye 30-year Bunds as swap spread tightens
Long-dated bonds continue to cheapen versus euro swaps, and some think they might fall further
Banks mull whether to stick or twist with SDPs
Fewer providers are going all-in on single-dealer platforms, which may lead to consolidation
Market for ‘orphan’ hedges leaves some borrowers stranded
Companies with private credit loans face punitive costs from banks for often imperfect hedges
Green knights? Banks step into struggling carbon credit markets
Clearer global standards and a new exchange may attract dealer entry, but supply and demand challenges remain
Most read
- Top 10 operational risks for 2024
- Japanese megabanks shun internal models as FRTB bites
- LCH issued highest cash call in more than five years