Much of the debate around a potential British exit (Brexit) from the European Union has centred on the potential macroeconomic impact. In this paper, we instead focus on understanding market expectations for price action around the Brexit referendum date. Extracting implied distributions from...

The cost of systemic risk in the over-the-counter (OTC) derivatives market is described and estimated. Modern portfolio theory (MPT), applied to OTC derivatives, predicts this cost, which has been growing since 1970. This cost grew because Congress blocked MPT's predicted market forces. Without...

In this paper we derive the measure of position-unwinding risk of currency carry trade portfolios from the currency option pricing model. The position-unwinding likelihood indicator is in nature driven by interest rate differential and currency volatility, and highly correlated with global...

This study investigates an efficient parametric portfolio policy model to improve the return distribution of the well-known currency carry trade investment strategy. This carry trade strategy invests into high-yielding currencies that are subsequently funded by low-yielding currencies. Following...

This note draws an analogy between deviations from no-arbitrage forward-spot relationships in currency and in commodity markets. The key is to notice that the U.S. dollar acts as a commodity in foreign exchange (FX) markets. In the physical commodity space, if the spot price is too high relative...

Over-the-counter (OTC) traders cannot pursue the two fundamental objectives of portfolio management, the identification of portfolio market risk and return and its diversification. The result of this major market shortcoming is a complex, systemically risky market disequilibrium. The tradable...

I show that volatility risk of the dollar factor --- an equally weighted basket of developed U.S. dollar exchange rates --- carries a significant risk premium and that it is priced in the cross-section of currency volatility excess returns. The dollar factor volatility risk premium is negative...

This paper analyzes key clauses relevant to valuation in the 1992 ISDA Master Agreement. The paper focuses principally on the section 14 definitions of: Market Quotation and Loss and on ISDA's Basic Set-off Provision which is frequently added via the Master Agreement Schedule. Additional clauses...