Working Paper Series
The BTRM Working Paper Series serves to highlight recent developments in the fields of banking, financial markets, economics and econometrics. Articles are subject to review by the BTRM Faculty prior to publication. We welcome submissions that are previously unpublished, we are also happy to reproduce with permission articles published previously in trade magazines or academic journals. Articles should be between 1500 and 3500 words in length (excluding Appendices and Bibliography) and submitted as a Word document. For further information please get in touch with the BTRM Faculty.
by K. Boovendran, September 2020
Bond market pricing follows age-old and time-honoured principles of corporate finance and present value. A dealer of fixed income securities focuses on yield, and the price is calculated by using the PV principle. Accuracy is taken for granted. However the whole concept of bond mathematics makes a number of assumptions, which are not necessarily realistic.
The author finds two discrepancies in the calculation of dirty price and accrued interest which causes the clean price to be distorted. He shows how and why the formulae used are incorrect, and that the present value factor is over-estimated by the use of inappropriate formulae. This results in over-payment of the dirty price to the seller. Within the dirty price, there is over-payment on account of accrued interest, with the issue being that often full accrued interest is paid instead of its present value. Both these factors distort the clean price, leading to improper accounting of the transactions.
The author suggests a modified compounding formula to rectify the distortions. Both the existing and suggested formulae have been tested for their accuracy. The author concludes by discussing comparative advantages of using the modified compounding formula and the practical implications for fixed income fund managers.
by Harish Nair (Under Guidance of Professor Krzysztof Jajuga, Wroclaw University of Economics, Poland), September 2020
We're pleased to present a comprehensive review of the current and potential impact of the Covid-19 market-wide stress event on banks around the world. The author is Harish Nair, who has previously published with The BTRM. We're grateful to receive his submission which includes accessible and detailed coverage and exhibits.
BTRM Working Paper Series, #12
Correlation Coefficient of Indian Oil Market Stocks and currency pairs.
by Harish Nair, June 2020
Harish Nair, who is with the National Bank of Oman, has written a working paper on the correlation coefficient of oil sector stocks in the Indian market, with a look at selected currency pairs over the last 20 years.
BTRM Working Paper Series, #11
Primer: Accessible guide on estimation of the Nelson-Siegel yield curve.
by Raphael Franco Chaves, December 2018
Having recently posted about the importance of fitting an accurate term structure, it's great to be able to present this elegant item from Raphael Franco Chaves of John Deere Financial, Iowa, USA. He has written a succinct and easy to implement guide for the Nelson-Siegel yield curve, with an accompanying Excel worksheet and sample output results. Enjoy...
by Professor Moorad Choudhry, March 2018
Ahead of my more detailed article on this topic in "The European Finance Review" next month, the link below is to a short piece on the same subject that appeared in the Spring 2018 issue of "International Banker", the members' publication of the Worshipful Company of International Bankers.
by Jaafar Husain – Quant Analyst, Bank ABC, October 2017
In this article we will introduce an effective statistical approach to replicate hedge fund returns. The approach is based on a carefully designed stepwise regression procedure. The objectives of the regression procedure are to 1) identify the strategies and markets to which a hedge fund manager is exposed, and 2) to analyze the progression of these exposures over time. While a hedge fund manager will continually change their overall exposure to exploit market anomalies, we wouldn’t expect a manager who for many years traded in the long/short equity space to suddenly switch to the stressed equity space. The regression procedure is designed to capture such strategy drifts.
by Jaafar Husain – Quant Analyst, Bank ABC, February 2017
In this article we will touch upon a very important concept known as “short volatility strategy” and bring some insight into the intricate relationships that exist among seemingly different asset classes.
by David Castle, September 2016
We welcome back David Castle from Waltham Partners for his second article in the WP series. The article is entitled "Liquidity Strategy: New Rules or New Game?", and as David writes in the abstract, "This paper discusses the impact of Basel III liquidity ratios on treasury with cash to invest or manage, and the evolution of investment strategies in response to these changes."
by David Castle, September 2016
One of the key tenets of a coherent strategic ALM policy is an integrated approach to raising customer liabilities. When we say integrated we mean an articulated strategy that seeks to create the optimum liabilities mix and one that complements the asset mix side of the balance sheet. The sixth in our series of Working Papers is authored by David Castle and is entitled "Establishing a Broad Client Liabilities Strategy". Mr Castle presents one way to make an excellent start in getting such an optimising process underway."
BTRM Working Paper Series, #5
An investigation of hypothetical variance-covariance matrix stress-testing
by Quintin Rayer, February 2016
BTRM Working Paper Series, #4
KVA – Profit Deferral and Return on Capital Implications for Pricing, Hedging and Accounting
by Lincoln Hannah (FIS, formerly Sungard), April 2016
BTRM Working Paper Series, #3
A case study in carry trade and cross pair allegiance switching, pre and post 2008.
by Brian Twomey, (Published previously in the Journal of Knowledge Management, Economics and Information Technology, Vol. 5, Issue 5, November 2015.)
by Bert-Jan Nauta, August 2015
by Professor Moorad Choudhry, April 2015