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International Monetary Fund

that the interest rate options market is still very thin, and used mainly by leveraged investors. 22. A number of banks also offer fully or partially principal protected range accrual notes . These notes are custom made by banks according to customer needs, or embedded into principal protected notes aimed at mutual funds and wealthy individuals. Structuring banks hedge their exposure using call spreads. The interest rate options market, however, is very thin, forcing banks to issue a limited number of notes. In some instances, the banks first acquire the needed

International Monetary Fund
This technical note provides an overview of Mexico’s derivatives markets, and describes concisely the derivatives regulatory framework and risk management practices in financial institutions active in these markets. The most important derivatives market in Mexico is the over-the-counter (OTC) derivatives market, which is fully integrated with the global derivatives market. The origin of the OTC derivatives market can be traced back to the 1994 Mexican crisis that forced Mexico to abandon its fixed exchange rate regime.
Louis O. Scott
Prices in futures markets and option markets reflect expectations about future price movements in spot markets, but these prices can also be influenced by risk premia. Futures and forward prices are sometimes interpreted as market expectations for future spot prices, and option prices are used to calculate the market’s expectations for future volatility of spot prices. Do these prices accurately reflect market expectations? The purpose of this paper is to examine the information that is reflected in futures prices and option prices. The issue is examined by reviewing both the relevant analytical models and the empirical evidence.
Mr. D. F. I. Folkerts-Landau

potential length of the hedge. The discussion above thus shows that considerations of creditworthiness have closed access of indebted developing countries to fixed-rate debt markets, forward markets, and interest rate swap markets, 19 while the requirement of up-front premia deter the use of the interest rate options market. Finally, limitations on the feasible length of the hedge, and considerations pertaining to managing and monitoring futures positions have limited the usefulness of interest rate futures as a medium-term risk management tool for indebted developing

Louis O. Scott

stock index options market and in the interest rates options market. For both of these markets, volatilities were below long run averages. Downward sloping term structures are less common. One week after the stock market crash of October 1987, volatility in the U.S. stock market, as implied in the S&P 100 options, was approximately three times greater than the level from earlier in the month. By historical standards, volatility was incredibly high and it did decrease gradually over the subsequent six months, but the term structure of volatility on October 27, 1987