Derivative Instruments

Derivative Instruments - Articles & White Papers

Professional and academic papers on derivative instruments. Futures, options, swaps, forwards and OTCs can be great tools for fund managers, and much of the research in this section addresses practical issues relating to their use. Overlay strategies can be used for: managing risk, adding leverage, maintaining equity beta, market timing, controlling risk factor exposures or for transition management. Index futures can be used for TAA strategies; derivatives can be used for fixed income overlay strategies; interest-rate futures can...

be used to manage interest rate risk; and currency forwards can be used to manage currency risk. All of these themes are covered in articles and reports in this section. Of course the use of derivatives in the front office throws up operational challenges for the back office, whether in collateral management, margin management or in fund accounting. Indeed the pricing of options in particular is a key challenge, and many papers on this section focus on option pricing, for instance Nassim Taleb's paper explains that options traders use sophisticated heuristics - never Black-Scholes-Merton! A key concept in options pricing is that of implied volatility. Volatility research in this section includes reports on: volatility as an asset class, the volatility of volatility, the VIX index, and investing in short volatility (VXX). Other popular futures and options white papers in this section cover hedging portfolio strategies, optimal portfolio construction, derivatives regulation, rebalancing using options, inflation hedging, the Black-Litterman model, central clearing, counterparty risk and systemic risk.

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