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Mean and modal Bank Rate expectations
Will Dison and David Elliott. Financial market prices provide information about market participants’ Bank Rate expectations. But central expectations can be measured in different ways. Mean...
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Life below zero – the impact of negative rates on derivatives activity
James Purchase and Nick Constantine. In 1995, Fischer Black, an economist whose ground-breaking work in financial theory helped revolutionise options trading, confidently stated that “the nominal short...
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A balancing act: the case for macroprudential margin requirements
Cian O’Neill and Nicholas Vause. Certain policy actions require a high level of precision to be successful. In a recent paper, we find that using margins on derivative trades as a macroprudential tool...
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Fluttering and falling: banks’ capital requirements for credit valuation...
Giulio Malberti and Thom Adcock The financial crisis exposed banks’ vulnerability to a type of risk associated with derivatives: credit valuation adjustment (CVA) risk. Despite being a major driver of...
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Margin call! Cash shortfall?
Marco Bardoscia, Gerardo Ferrara and Nicholas Vause Participants in derivative markets collect collateral from their counterparties to help secure claims against them should they default. This...
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2020 hindsight: what can supervisors learn from the collapse of Barings Bank...
Ben Dubow This year marks 25 years since the failure of Barings Bank. On Sunday 26 February 1995, the 200-year old merchant bank blew up thanks to derivatives trading, which it believed was both...
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‘There is all the difference in the world between paying and being paid’:...
Gerardo Ferrara, Gerardo Martinez, Pelagia Neocleous, Pierre Ortlieb and Manesh Powar The Russian invasion of Ukraine in February 2022 and subsequent sanctions led to unprecedented increases in key...
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Leveraged and inverse ETFs – the exotic side of exchange-traded funds
Julian Oakland Exchange-traded funds (ETFs) are supposed to be simple and straightforward, and for the most part they are, but one group punches well above its weight when it comes to market impact....
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Caring for the ‘future’
David Glanville and Arif Merali Short term interest rate (STIR) futures are the bedrock of interest rate markets, used to price expectations of central bank policy rates and other UK rate derivative...
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