Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JOD
    • Editorial Board
    • Published Ahead of Print (PAP)
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

User menu

  • Sample our Content
  • Request a Demo
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Derivatives
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Request a Demo
  • Log in
The Journal of Derivatives

The Journal of Derivatives

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JOD
    • Editorial Board
    • Published Ahead of Print (PAP)
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter
Open Access

Editor’s Letter

Stephen Figlewski
The Journal of Derivatives Summer 2009, 16 (4) 1-2; DOI: https://doi.org/10.3905/JOD.2009.16.4.001
Stephen Figlewski
Editor
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • Article
  • Info & Metrics
  • PDF
Loading

Former New York City Mayor Ed Koch was famous for stopping people on the street to ask: “How’m I doing?” These days, the whole country is asking the same question of Ben Bernanke, Tim Geithner, and the other stewards of the economy, who are all attempting to lead us out of the depths of financial meltdown on to the high ground of economic recovery. The current answer to how we’re doing is that maybe some “green shoots” are beginning to be visible, as evidenced by statistics indicating that we might no longer be in free fall. We’re still hurtling downward, of course, but the rate of collapse may be slowing. It is sobering that we’re reduced to celebrating the possibility that the second derivative of the economy may have turned from negative to mildly positive.

The beginnings of the financial crisis were seen in 2007 in the market for collateralized debt obligations (CDOs) tied to mortgage loans. Modeling risk exposure for credit derivatives, and the losses distributions for CDO portfolios in particular, has been a hard problem all along, but the shortcomings of the standard models became all too apparent as default rates rose. One of the biggest factors was that both tail risk and default correlations turned out to be much higher than what had been expected. The first paper in this issue, by Burtschell, Gregory and Laurent, compares the theoretical behavior and empirical performance of a number of alternative CDO models. They obtain interesting general theoretical results, like a monotonic relation for some of the specifications between relative tranche values and a single correlation measure, as well as valuable empirical evidence, like the observation that fat-tailed distributions for the risk factors are better at fitting market data on tranche prices. The next paper also examines differences between standard pricing models and market behavior, in the form of the skewness of stock returns distributions as implied by options prices. It is well-known that realized stock returns tend to be negatively skewed, and risk-neutralization increases negative skewness. Taylor, Yadav and Zhang explore the regular properties of this phenomenon.

The other articles in this issue present new valuation approaches for several kinds of derivative instruments. The third paper, by Benner, Zyapkov and Jortzik, addresses the problem of cross-currency interest rate products, for which it is necessary for the model to be simultaneously consistent with the levels and dynamics of the term structures in both countries as well as the exchange rate between them. After that, Li and Zhao present a clever new way to apply results from theoretical combinatorics to a binomial lattice in order to value Parisian options, which are subject to relatively complicated path-dependence. Finally, Moraux offers an analysis and a new valuation approach for perpetual American strangles, another path-dependent contract that combines a perpetual call and a perpetual put, with the provision that when one option is exercised the other expires worthless.

When I finished writing the last Editor’s Letter, for the Spring 2009 JOD a few months ago, we were all hunkered down, expecting that things were likely to get worse before they got better, and hoping that we wouldn’t have to wait too long for the regime shift to occur. Well we’re still hunkered down…but…is that a green shoot I see?!

I hope so! But while we’re holding our breath waiting to see if it takes root and grows, it is that time of year once again to celebrate an event whose occurrence is settled: We congratulate all of the students who are graduating this spring! (and wish them good luck as they confront a difficult job market). And, as usual, we also congratulate their parents, both for their children’s achievements and also for the fact that they can finally stop making those tuition payments.

TOPICS: Options, CLOs, CDOs, and other structured credit, financial crises and financial market history

Stephen Figlewski

Editor

  • © 2009 Pageant Media Ltd

PreviousNext
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Derivatives
Vol. 16, Issue 4
Summer 2009
  • Table of Contents
  • Index by author
Print
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Derivatives.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
Editor’s Letter
(Your Name) has sent you a message from The Journal of Derivatives
(Your Name) thought you would like to see the The Journal of Derivatives web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
Editor’s Letter
The Journal of Derivatives May 2009, 16 (4) 1-2; DOI: 10.3905/JOD.2009.16.4.001

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
Editor’s Letter
The Journal of Derivatives May 2009, 16 (4) 1-2; DOI: 10.3905/JOD.2009.16.4.001
del.icio.us logo Digg logo Reddit logo Twitter logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
  • Info & Metrics
  • PDF

Similar Articles

Cited By...

  • No citing articles found.
  • Google Scholar
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 139 1600
 
NEW YORK
41 Madison Avenue, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

MORE FROM PMR

  • Home
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Log In
  • Update your profile
  • Give us your feedback

© 2022 Pageant Media Ltd | All Rights Reserved | ISSN: 1074-1240 | E-ISSN: 2168-8524

  • Site Map
  • Terms & Conditions
  • Privacy Policy
  • Cookies