Resources
Publications
Vega Margin Interval (VMI) and Delta Margin Interval (DMI) are key inputs to scenario-based margin methodologies (e.g.,
CME SPAN and OCC TIMS). The current Volatility Scan Range (VSR) VSR methods adopted by clearing houses does not recognize the
volatility skew. In this paper, we revised the VSR calculation by segmenting the observations into 4 categories, with co-movement of price and volatility considered. The findings suggest that the current methods can result in an understatement of volatility for options writers and overstatement of volatility for options buyers. The impact of SSR is significant and should not be ignored. (Publication: 7th Issue Canadian Chinese Finance Association (CCFA) Journal, 2022-06, Page 3l-38)
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The BAXtm futures is the most widely traded futures at the Montreal Exchange and complements the Canadian dollar interest rate swap market. Daily average turnover of OTC single currency interest rate derivatives in Canada according to bis.org was $US 30 billion Dec 2016. The use of futures for VaR, or in general for valuing derivatives based on futures, is problematic due to term structure differences. The OTC market standardizes the interest rate curve as tenors, e.g. 1m, 6m, 9m, 1yr, 2yrs… The futures market, on the other hand trades on contract months on a rolling basis. This paper illustrates a non-interative interpolation method to convert futures prices to a tenor curve. (Publication: FEBS/LabEx-ReFi 2013: Financial Regulation and Systemic Risk, June 2013, ESCP Europe Paris Campus)
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The financial crises of 2008 highlighted once again how regulatory regimes have moved in cycles over the years, allowing firms to apply regulatory
arbitrage, or to take advantage of lax controls. Going back to the post-depression reforms of the ‘30s, regulators in the US and Europe recognised
the need to reduce firms’ excessive risk taking, and to maintain a stable banking system as a foundation for stable and predictable economic
growth. The Glass Steagall act of 1932 was the US’s attempt to separate commercial activities from the more risky investment activities. Through
a combination of banking competition, politics, lobbying and the development of financial products that blurred the lines of securities and
commercial lending, through the 60’s and 70’s and in more modern times the act was whittled down until its eventual repeal in 1999.
Deregulation in the finance sector during the conservative era of the 80’s helped to more efficiently distribute capital to financial firms,
corporations and households. Even through this period, the finance sector was one of the most heavily regulated in the corporate sector. The root
cause of the crises can be traced more to a mis-regulaton and activist government policies rather than a lack of regulation altogether. Freddie
Mac and Fannie Mae’s loose lending policies, which led to the degradation of credit standards across the mortgage industry, the destruction of
home ownership, and the introduction of the term ‘sub-prime’ to the lexicon, was the main contributor to the recent crisis