Calculating tail risk in Fixed Income markets

In this study, the researchers from the Cheung Kong Graduate School of business constructed a model-free measure of tail risk for Fixed income markets using a proprietary dataset of swaptions, denoted as TAIL, which captures the price of insuring against extreme movements in interest rate swap rates.

The researchers show that TAIL closely tracks the variations in tail risk in the economy and has strong predictive power for returns on Treasury bonds, corporate bonds, mortgage-backed securities, Fixed-income hedge funds, and even equities, suggesting that interest rate tail risk is universally priced in all major Finanancial markets.

Read the full study here

Does a CCP really reduce counterparty risk

In this study, published in March 2015, the researchers ask themselves if a CCP is the go-to answer to mitigate counterparty risk.

The short answer is no. In some cases, a CCP is not beneficial for the users but it is done to suit the risk aversion of the regulators. This would explain why the OTC IRS market would not be moving towards a CCP if it would not be required to.

The study is conducted by Peter Zimmerman of the NY Federal Reserve and Rodney Garratt of the University of Oxford.

Read the full article here

Estimating the joint tail risk with Filtered Historical Simulation

This study, conducted by the Swiss Financial Institute of the University of Lugano, explores  Filtered Historical Simulation to estimate the potential losses a CCP would face in case of a multiple default.

Click here for the study