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Non-Tech : Derivatives: Darth Vader's Revenge
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To: Henry Volquardsen who wrote (831)3/25/1999 8:47:00 AM
From: accountclosed  Read Replies (2) of 2794
 
Henry, yet another question for you about bank derivative exposure. From time to time we see things saying that cmb is at the top of the heap on derivative exposure...like the size of gdp. My take is that what we are hearing is very hard to evaluate in terms of net exposure. Certainly most of all of the exposure is just getting to delta neutral....i.e. offsetting other positions. Kind of like looking at short interest on stocks these days. Who knows what it means with the growth of the options markets. Are there ways of determining even in a very crude way how much speculative derivatives a bank has as opposed to the gross portfolio offsetting derivatives? tia

btw. i have a little info about the bank i am most familiar with. their swap department sets up traders on one year contracts and lets them trade the bank's capital. if results are not up to snuff, the contract is not renewed. they have to fill the needs of the swap salesmen which is a negative to the trader. the interesting comment that i got out of the arrangement was that it wasn't the use of the capital that attracted the traders. that positive is way outweighed by the negative of having to fill the salesmen. the positive that kept them wanting to be in the position was being in the bank's information flow of what real world customers were doing. at least it was interesting to me.
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