Contents
1 Fixed income arbitrage 1 1.1 Government issued debt 1 1.2 Asset swaps excluding convertible bonds 3 1.3 Yield curve arbitrage 4 1.4 Corporate bond arbitrage 5 1.5 Capital structure arbitrage 8 2 Diversity in mortgage hedge fund investing 11 2.2 Some basic mortgage mechanics 12 2.3 Varieties of mortgage loans 13 2.4 Varieties of mortgage-backed securities 15 2.5 Varieties of strategies 16 2.6 Analytic methods and models 18 2.7 Liquidity and leverage 21 2.8 Net asset value and marking to market...
Dynamic structures CPPI
This structure was designed so investors can avoid having to pay up front for the principal protection in the form of an ZCB as they do in static structures. As we noted earlier, this is particularly beneficial for investments in hedge funds, where the implied volatility used to price the option component is usually expensive. In dynamic structures, the assets of the product are constantly reallocated between two asset pools the risky Hedge Fund Asset and a risk-free Bond Pool. The allocation...
The need for downside risk protection
If a hedge fund investor elects to invest in an index product, then that investor realizes that he or she will earn the inherent return of the asset class, will be able to do Exhibit 4 Copper super cycles. Author's source US Geological Survey Platts US Department of Labor. Source Heap 2005 Exhibit 4 Copper super cycles. Author's source US Geological Survey Platts US Department of Labor. Source Heap 2005 USA - Real Short-Term Interest Rates China - Real Short-Term Interest Rates USA - Real...
Choosing a company structure the SPC
A fund manager might decide to take the opportunity and set up his her fund in the newest most innovative shape of Cayman company structures the SPC. The SPC is a much improved version of the previous umbrella fund. An umbrella fund was formed by establishing a Cayman Islands exempted company with several classes of redeemable shares, whereby each class could represent a completely different portfolio of assets. However, umbrella structures encountered problems connected to the rights of their...
GOVERNMENT ISSUED DEBT 111 Basis trading cash versus futures
The basis arbitrageur seeks to opportunistically buy or sell sovereign bond futures against purchasing or selling short a weighted basket of cash bonds. The cash bonds will be deliverable by virtue of the contract specifications as set by the futures exchanges i.e. Chicago Board of Trade CBOT , London International Financial Futures Exchange LIFFE . The arbitrageur will typically purchase futures and sell the cash bonds at spreads that are expected to profitably converge at delivery. Rarely...
Contributors
Jean-Marie Barreau has over 15 years of experience in derivatives, structured products and hedge funds investments. As Managing Director at Deutsche Bank London, responsible for global fund derivatives from 2001 until 2004. He created the Xavex Alternative Investment, a hedge fund managed account platform. From 1990 to 2001, Jean-Marie worked in the equity derivatives department of Societe Generale. He served in the SG Equity Derivatives, as head of structured products in New York from 1994 to...