Liquidity Cascades
Flirting with Models
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How to Generate a Yield on a Fixed Income Style Investment
As interest rates around the globe have declined to or below the zero bound, generating a yield on a fixed income style investment has become more difficult. The increasing issuance of these notes means that banks canfind themselves in a suddenly crowded trade. As markets plum it knock in barriers are hit and banks begin to unwind their hedge by purchasing puts. In theory, what keeps the entire system in line is arbitrage - we demonstrate how this works with an eu 500 market.
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