The financial crisis of 2007-09 revealed the importance of counterparty credit risk in the valuation of non-collateralized interest rate swaps. In theory, these valuations rest on assumed default probabilities and recovery rates. These assumptions, however, should be reflected in the...

With interest rate swaps being the most widely used of all financial derivative contracts, financial analysts and engineers should be keenly interested in any regulations that could influence how these tools are used. This article addresses one such regulatory aspect - namely, the accounting...

By the end of 2002, public companies in the United States were required to comply with a new set of accounting rules related to corporate use of derivative instruments. Financial Accounting Statement (FAS) No. 133 has subsequently become widely recognized as the most complex set of accounting...

Currency risk is an inherent aspect of international commerce. Fortunately, for enterprises that operate in this space – particularly for those that transact with counter-parties having major currencies as their functional currency – there are a variety of derivative instruments that can be...

Last June, the private Financial Accounting Standards Board implemented a new standard that requires companies that compile balance sheets to show changes in a derivative's value as an asset or loss, even if the derivative remains in an open position. This new standard radically conflicts with...

When considering the use of Eurodollar futures (or virtually any short-term interest rate futures, for that matter, such as Treasury bill, Fed funds, or LIBOR futures) for hedging purposes, one of the first issues that arises is how to go about figuring out how many contracts to use. This...

The purpose of this article is to describe a new market mechanism at work in the Chicago Mercantile Exchange's Eurodollar futures market. This new practice, referred to as Bundles, allows market users to transact multiple futures expirations with a single bid or ask price. Though the innovation...