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China Aviation Oil – Derivative Losses

China Aviation Oil (Singapore) Corporation Ltd (“CAO”) is the largest physical jet fuel trader in the Asia Pacific region and the key supplier of imported jet fuel to the PRC civil aviation industry. CAO’s key businesses include jet fuel supply and trading, trading of other oil products and investments in oil-related assets. Incorporated in Singapore on 26 May 1993, CAO

WorldCom Accounting Scandal: The Wrong Call (Part 2)

This is part 2 of the the two-part series on the WorldCom Accounting Scandal. You can read part 1 here. The year 2000 was a major year for WorldCom There had been a slowdown in the long distance market for some time, it reached its lowest in 2000. Long distance players like WorldCom and Sprint

WorldCom Accounting Scandal: The Wrong Call (Part 1)

From its beginnings as a long distance call player to handler of Internet data traffic, WorldCom was a spectacular firework in the sky before it crashed out as one of the biggest bankruptcies America has witnessed in its corporate history. WorldCom carried more international voice traffic than any other company. It carried a large amount

Mapping Zero-coupon Bonds to Risk Factors

We earlier learned that VaR calculation of a complex portfolio can be simplified by decomposing the instruments into building blocks, or primitive instruments, which are further mapped to a small set of risk factors. Zero-coupon bonds are one such primitive instrument apart from spot FX positions, equity positions, and futures/forwards. In this article we will

Orange County Case

The importance of a good risk management team that oversees investments is critical in an institution. This is especially more so for a County. The Orange County ran into very troubled investment waters in 1994. Litigation and a buoyant economy helped right many of the wrongs. It was a very expensive way, of about $1.6

Mapping Equity Positions

Equity positions are a bit more tricky compared to the FX positions. The main problem arises while dealing with the correlations between the different equity positions. As the number of positions in the equity portfolio increases, the correlation matrix can become substantially large and almost impossible to handle. In case of equity positions, the number

Credit Officer: Long Term Tasks

We have seen till now that a credit officer’s tasks include daily monitoring of limits and provisions and scanning other risks and their impact. There are some tasks which he needs to undertake only on an annual basis, but are important nevertheless. Strategy Review: A credit officer reviews strategic positions on a daily basis, but

Credit Protection: Risk or Return, What Matters More?

Credit officers are sometimes tempted to allow traders to trade with counterparties despite their credit lines being full. What are his options then? He could increase the credit limit. Alternatively he could reduce exposure by repackaging short-term exposure to long-term exposure by using custom swaps in order to utilize the entire term structure of the

Credit Risk Documentation (Specific to Credit Derivatives)

The proper assessment of credit risk, default or monitoring can be done first through documentation. This is certainly most true for credit derivatives. Clear documentation will help determine for example, when the counterparty has defaulted. In the case of general derivatives, a standardization procedure works well with respect to resolving problems with formulation and interpretation

Provision for Loan Loss

The FDIC reported in the first quarter of 2011 that provision for loan losses fell less than half compared to the previous year. It reports that provisions for loan losses fell to $20.7 billion in the first quarter from $51.6 billion a year earlier. This marks the sixth quarter in a row that loss provisions