The future of swiss asset management: A look in the crystal ball

Until recently, Switzerland had an unmatched reputation for the quality of its banking services. Based on a secular tradition of security and a strict banking secrecy enforced by law, Swiss banks have established themselves as leaders in discretionary asset management. Recent studies estimate that about 35 percent of the private off-shore wealth is managed in Switzerland. At the end of 1996, asset management in Switzerland represented about 2.5 trillion Swiss francs (about $2 trillion), provided 3.5 percent of the total added value in the country, and contributed 4.44 billion Swiss francs in taxes, making it one of Switzerland's major sector of activity. But the traditional paradigm on which asset management is based in Switzerland–confidentiality, conservatism, and safety–is undergoing rapid change. Have the profound changes which transformed the banking industry and its production structures over the past several years ended? This is the subject of a large study we carried out with the Institute of Banking and Financial Management at HEC-University of Lausanne. This survey provides an unbiased global reference and a neutral benchmark describing the current state of the Swiss asset management industry. It should help the assessment of specific strategies before considering implementations issues. This interview article contains part of the survey results and identifies a few factors that could prolong the industrial revolution underway. © 1999 John Wiley & Sons, Inc.     

Financial Risk Management: An Introduction

This article provides a brief introduction to risk management. It discusses the rationale for risk management for corporations, with a strong focus on financial risk management. It describes the various risks that a company is facing, as well as the various steps to identify and manage them. An illustration of the major tools and methodologies is provided for the case of market risks. © 2001 John Wiley & Sons, Inc.     

Not just another financial derivatives book!

Rubinstein M.: (1999) Derivatives: A PowerPlus Pic‐ture Book, In the Money, 381 pages plus CD‐ROM, distributed only through the Internet (http://www.in‐the‐money.com) Rubinstein M.: (2001) Rubinstein on Derivatives, Lon‐don: Risk Books, 471 pages, ISBN 1‐899332‐53‐7     

Pricing and Hedging Discount Bond Options in the Presence of Model Risk

This paper focuses on pricing and hedging options on a zero-couponbond in a Heath—Jarrow—Morton (1992) framework whenthe value and/or functional form of forward interest rates volatilityis unknown, but is assumed to lie between two fixed values.Due to the link existing between the drift and the diffusioncoefficients of the forward rates in the Heath, Jarrow and Mortonframework, this is equivalent to hedging and pricing the optionwhen the underlying interest rate model is unknown. We showthat a continuous range of option prices consistent with noarbitrage exist. This range is bounded by the smallest upper-hedgingstrategy and the largest lower-hedging strategy prices, whichare characterized as the solutions of two non—linear partialdifferential equations. We also discuss several pricing andhedging illustrations.     

Latvia

Situated on a trading crossroads between Western Europe and Russia, Latvia has emerged as one of the most successful countries in Central Europe. This article provides a comprehensive review of Latvia's historical development, political structure, economy, investment, and foreign‐trade environment. It aims to be a useful source of information for foreign businessmen and investors interested in doing business in Latvia. In the fall of 1991, when the Baltic States separated from the Soviet system, no one predicted that these countries would make the transition to a market‐based economy as quickly and as effectively as they have. However, 11 years later, with notable growth and rising standards of living, such thinking is no longer considered overly optimistic. “It is the biggest, most complicated, and most promising piece of the new Europe,” wrote The Economist (1998) in reference to the Baltic region. Wherever there is new growth, there are many business opportunities to be found. Latvia's position in the center of this region is one indication of the business potential for those with the capacity to do business there. © 2003 Wiley Periodicals, Inc.     

Time at risk: Toward a banking titanic?

The Year 2000 problem is quickly becoming known as potentially the biggest challenge in the brief history of information technology. The complexity of the problem is particularly true for financial institutions, such as banks, which rely heavily on information technology and are interconnected and interdependent. This article reviews the millennium problem and its possible implications for banks and financial institutions worldwide. © 1999 John Wiley & Sons, Inc.     

Model misspecification analysis for bond options and Markovian hedging strategies

In this paper, we analyse the model misspecification risk of Markovian hedging strategies for discount bond options. We show how to decompose the Profit and Loss that results from model misspecification, and emphasize the importance of the position’s gamma in order to control it. We further provide mathematical results on the distribution of the forward Profit and Loss function for specific univariate term structure models. Finally, we run numerical simulations for options’ hedging strategies in order to examine the sensitivity of the forward Profit and Loss function with respect to the volatility of the forward rate curve, the frequency of the position rebalancing and the characteristics of the position being hedged.