Fixed Income Arbitrage in a Financial Crisis (C): TED Spread and Swap Spread in November 2008 Case Solution

This Case is about  FINANCIAL MARKETS, RECESSION, RISK MANAGEMENT

PUBLICATION DATE: January 18, 2011 PRODUCT #: 211051-PDF-ENG

Investment manager Albert Mills faces an obvious arbitrage chance during the worldwide monetary catastrophe of 2008 when he sees an extraordinarily low -and briefly negative- thirty-year U.S. dollar fixed-floating swap spread. Mills must determine whether there’s an opportunity, how much of his fund’s capital to allocate, and how to structure a trade to use it. Instance exposition contains descriptions of fixed-floating swaps, significant rates of interest and spreads (LIBOR, TED spread, swap spread), and funding arrangements, especially repurchase agreements, that support relative-value strategies. Focus also is paid to bond mathematics computations that support selection and the protagonist’s investigation. All quoted costs in the instance are historic and actual, and similar Bloomberg orders are provided for each as footnotes.

Fixed Income Arbitrage in a Financial Crisis (C): TED Spread and Swap Spread in November 2008 Case Solution
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