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Research Papers

Our experts have published extensively in peer-reviewed journals. Pre-publication versions of these papers plus other working papers are available below.

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Are VIX Futures ETPs Effective Hedges?

By: Geng Deng, Craig McCann, and Olivia Wang

Exchange-traded products (ETPs) linked to futures contracts on the CBOE S&P 500 Volatility Index (VIX) have grown in volume and assets under management in recent years, in part because of their perceived potential to hedge against stock market losses.

In this paper we study whether VIX-related ETPs can effectively hedge a portfolio of stocks. We find that while the VIX increases when large stock market losses occur, ETPs which track short term VIX futures indices are not effective hedges...

Isolating the Effect of Day-Count Conventions

By: Geng Deng, Tim Dulaney, Tim Husson, and Craig McCann

Day-count conventions are a ubiquitous but often overlooked aspect of interest-bearing investments. While many market traded securities have adopted fixed or standard conventions, over-the-counter agreements such as interest rate swaps can and do use a wide variety of conventions, and many investors may not be aware of the effects of this choice on their future cash flows. Here, we show that the choice of day-count convention can have a surprisingly large effect on the market value of swap...

Optimizing Portfolio Liquidation Under Risk-Based Margin Requirements

By: Geng Deng, Tim Dulaney, and Craig McCann

This paper addresses a situation wherein a retail investor must liquidate positions in her portfolio -- consisting of assets and European options on those assets -- to meet a margin call and wishes to do so with the least disruption to her portfolio. We address the problem by first generalizing the usual risk-based haircuts methodology of determining the portfolio margin requirement given the current positions of a portfolio. We derive first and second-order analytic estimates for the margin...

A Primer on Non-Traded REITs and other Alternative Real Estate Investments

By: Tim Husson, Craig McCann, and Carmen Taveras

In this paper we provide a brief overview of the ways to achieve real estate exposure and focus our analysis on alternative real estate investments. The term alternative real estate investment, as used in this paper, refers to real estate securities such as non-traded Real Estate Investment Trusts (REITs), private REITs, and Tenants-in-Common (TICs), which are often sold to but may be unsuitable for most retail investors. Some common problems of alternative real estate investments are: 1)...

CLOs, Warehousing, and Banc of America's Undisclosed Losses

By: Tim Husson, Craig McCann, and Olivia Wang

Collateralized Loan Obligations (CLOs) are issued by trusts which in turn invest the proceeds from issuing the CLO securities in portfolios of bank loans. This note explains the conflicts of interest created when an investment bank accumulates loans for potential securitization prior to the issuance of a CLO through a practice known as 'warehousing.' Warehousing appears to have resulted in some CLO trusts issuing securities without disclosing to investors that the securities had lost almost...

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