Blog Posts

Setting up offshore fund structures and reinsurance companies can be a complex process, but it can offer several strategic benefits for hedge funds. Below we have an explanation of how this might work and why a hedge fund might pursue this strategy.   Key Takeaways – Reinsurance & Hedge Funds Diversification and Stable Income: Hedge […]

Contingent claim valuation is a method used in financial modeling to value financial instruments. This approach to valuation is typically used for derivative securities and other financial assets that have specific conditions, or contingencies, under which they pay off. In essence, the value of a contingent claim depends on the realization of some uncertain future […]

Various volatility models have been developed to understand, predict, and harness volatility. Volatility represents the degree of variation of a financial instrument’s price over time. While volatility is not necessarily risk itself, it’s a form of risk. So, broadly speaking, the higher the volatility, the riskier the security. We look into some of the most […]

In finance, volatility clustering refers to the observation that large price changes in financial markets are often followed by more large changes, and similarly, small changes are typically succeeded by more small changes. This observation was first noted by Mandelbrot in 1963, who stated that “large changes tend to be followed by large changes, of […]

The Exchange Rate Overshoot Hypothesis, often referred to as the Overshooting Model, is a concept in foreign exchange (FX) trading. It offers an explanation for the often volatile short-term movements in exchange rates. Understanding this hypothesis can provide FX traders with insights into the dynamics of the currency markets they trade.   Key Takeaways – […]

Before trading foreign equities denominated in a different currency, it’s important to understand that it’s not just the returns, but returns + the currency movement. For example, if the USD has a higher nominal interest rate than the JPY, it will have implications for the forward curve of the USD/JPY currency pair. So if a […]

Interest rate parity (IRP) is a fundamental concept in international finance that describes the relationship between interest rates and foreign exchange rates. At its core, IRP asserts that the difference in interest rates between two countries is equal to the expected change in their exchange rates. We also give a mathematical example below.   Key Takeaways […]

Thirlwall’s Law, named after the British economist Anthony Thirlwall, is a principle in macroeconomics that explores the relationship between economic growth and the balance of payments in an economy. It posits that the long-term growth rate of an economy is directly related to the growth rate of exports divided by the income elasticity of demand […]

A liquidity trap occurs when interest rates are low and savings still don’t translate to investments, essentially rendering monetary policy ineffective. This phenomenon is often accompanied by a flat demand curve for money, where individuals hoard cash instead of placing it in bonds or other riskier investments. Financial Market Implications Asset Price Inflation In a […]

Let’s look at some of the most abstract concepts in finance, trading, and investing.   Key Takeaways – Most Abstract Concepts in Finance, Trading & Investing Strategic vs. Tactical Asset Allocation: Strategic asset allocation is a passively-held, well-diversified portfolio, while tactical asset allocation involves active tilts and trading. Tactical trading is hard and often leads […]