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In the course of trading and investing, Tier 1 investment banks generate counterparty EPE and ENE (expected positive/negative exposure). Whereas historically, this exposure was a concern of both the Front Office trading desk and Middle Office finance teams , increasingly CVA pricing and hedging is under the "ownership" of a centralized CVA desk .
For an MBS, the word "option" in option-adjusted spread relates primarily to the right of property owners, whose mortgages back the security, to prepay the mortgage amount. Since mortgage borrowers will tend to exercise this right when it is favourable for them and unfavourable for the bond-holder, buying an MBS implicitly involves selling an ...
The Z-spread of a bond is the number of basis points (bp, or 0.01%) that one needs to add to the Treasury yield curve (or technically to Treasury forward rates) so that the Net present value of the bond cash flows (using the adjusted yield curve) equals the market price of the bond (including accrued interest). The spread is calculated iteratively.
The amount of liquidity you have available to buy securities is called buying power. It’s also known as excess equity, and refers not only to the cash available for buying assets but also the ...
In finance, a credit spread, or net credit spread is an options strategy that involves a purchase of one option and a sale of another option in the same class and expiration but different strike prices. It is designed to make a profit when the spreads between the two options narrows.
The excess spread must be large enough to offer the potential of attractive IRRs to the equity holders. Other underwriter responsibilities include working with a law firm and creating the special purpose legal vehicle (typically a trust incorporated in the Cayman Islands ) that will purchase the assets and issue the CDO's tranches.
The subtraction done one way corresponds to a long-box spread; done the other way it yields a short box-spread. The pay-off for the long box-spread will be the difference between the two strike prices, and the profit will be the amount by which the discounted payoff exceeds the net premium. For parity, the profit should be zero.
Using a bank network to protect excess deposits is convenient. You also receive account summaries and a Form 1099 for your taxes. Another option is the Depositors Insurance Fund, a Massachusetts ...