What if your most sophisticated model is wrong? A model can be backed by vast amounts of data and still misrepresent reality. More data may only make the wrong answer look more convincing. The key is to ask: what does the model assume, and what if it’s wrong?
What feels like a regime shift may in fact be a return towards normality, with higher yields, greater uncertainty and more freedom for markets to set prices. For relative value investors, that could mean greater dispersion across curves, countries and instruments, and a much broader opportunity set.
The final paper in our series explores how derivative classification under Solvency II can significantly affect capital outcomes for relative value strategies.
Continuing our short series exploring how Solvency II (SII) applies to the use of derivatives within a pure relative value investment strategy, this third paper looks closely at their use under the classification of risk-mitigation.
As a firm specialising in managing pure relative value strategies, where derivatives play a central role, we are keen to open the conversation around how these instruments can be used effectively and prudently within the constraints of Solvency II (SII) through a short series of papers. In this second paper, we look closely at the Prudent Person Principle and employing derivatives in the context of Efficient Portfolio Management (EPM).
Sovereign green bonds are often assumed to trade richer than their conventional peers – a pricing effect known as the greenium.
Dr. Laura Ryan’s research challenges the belief that bonds must be negatively correlated with equities to reduce risk, showing instead that relative volatility matters more – even when correlation is positive.
Gilts were back in the market’s crosshairs this week, as a sudden repricing in UK government bonds reignited concerns around fiscal credibility and underscored the shifting structural risk profile of duration assets.
Over the next few months, we’ll be releasing a short series of papers exploring how Solvency II (SII) applies to the use of derivatives within a pure relative value investment strategy. This first paper lays the groundwork for the series by outlining how we understand the core principles of SII as they relate to derivatives in a pure RV context.
Japan’s 40-year government bond auction on 28 May 2025 recorded its weakest demand since July last year, with a bid-to-cover ratio of just 2.21. The soft result pushed the 40-year yield up to 3.375%, driving a significant steepening of the super-long end of the curve and highlighting the growing risk premia investors now require to […]
