Term premia and macro factors

The fixed income term premium is the difference between the yield of a longer-maturity bond and the average expected risk-free short-term rate for that...

VIX term structure as a trading signal

The VIX futures curve reflects expectations of future implied volatility of S&P500 index options. The slope of the curve is indicative of expected volatility...

FX carry strategies (part 2): Hedging

There is often a strong case for hedging FX carry trades against unrelated global market factors. It is usually not difficult to hedge currency...

FX carry strategies (part 1)

FX forward-implied carry is a valid basis for investment strategies because it is related to policy subsidies and risk premia. However, it also contains...

A simple rule for exchange rate trends

Over the past decades developed market exchange rates have displayed two important regularities. First, real exchange rates (nominal exchange rates adjusted for domestic price...

Finding implicit subsidies in financial markets

Implicit subsidies in financial markets can be defined as expected returns over and above the risk free rate and conventional risk premia. While conventional...

Commodity pricing

A new paper combines two key aspects of commodity pricing: a rational pricing model based on the present value of future convenience yields...

Using yield curve information for FX trading

FX carry trading strategies only use short-term interest rates (and forward basis) as signal. Yet both theoretical and empirical research suggests that the whole...

Fixed income carry as trading signal

Empirical evidence for 27 markets suggests that carry on interest rate swaps has been positively correlated with subsequent returns for the past two decades....

The correlation risk premium

The correlation risk premium is a premium for uncertainty of future correlation of securities among each other or with a benchmark. A rise in...

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The importance of volatility of volatility

Options-implied volatility of U.S. equity prices is measured by the volatility index, VIX. Options-implied volatility of volatility is measured by the volatility-of-volatility index, VVIX....

Low rates troubles for insurances and pension funds

A CGFS report highlights the pressure of a ‘low for long’ interest rate environment on life insurance companies and defined-benefit pension funds. This pressure...

Seasonal effects in commodity futures curves

Seasonal fluctuations are evident for many commodity prices. However, their exact size can be quite uncertain. Hence, seasons affect commodity futures curves in two...

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