Risk Management by Structured Derivative Product Companies

[...]In this article, we explore the DPCs’ approachesto risk management and the extent to which theseapproaches provide competitive advantage. We begin bycharacterizing the major intermediaries in the derivativesmarkets and describing how they manage risk. We thendiscuss the emergence of structured DPCs and theirapproaches to managing risk, and explain how theapproaches minimize the capital required for triple-A ratings.Finally, we discuss the possible reasons why, despite these ratings, DPCs have not succeeded in taking a largershare of the derivatives markets.[...]