Why do I want extra yield for holding a perpetual that is priced near par? I try to explain the rationale in this essay, published as an appendix to the July, 2009, edition of PrefLetter.
There is a related essay, published in the Canadian Moneysaver of November 2007, that has also been highlighted on PrefBlog.
Look for the research link!
Investors will often purchase FixedResets in preference to PerpetualDiscounts because “there is better inflation protection”. In this essay, published as an appendix to the June, 2009, PrefLetter, I attempt to quantify and discuss this effect.
The related Break-Even Rate Shock Calculator has been published previously, as has the Moneyletter version of this discussion.
Look for the research link!
As an example of DeemedRetractible analysis, and as an aid to PrefLetter subscribers who are referred to previous issues, I am publishing the PrefLetter DeemedRetractible Review September 2016. It’s rather a large file!
This is notable for its lengthy argument justifying my belief that the NVCC rules currently applied to banks will be extended by OSFI to preferred shares issued by insurers and insurance holding companies. This argument has recently been buttressed by OSFI’s public commentary on the revision of the global insurance rules, as reported in the post OSFI Dovish on Insurance Tier 1 Eligibility Rule.
Update, 2018-11-3: Consultations continue as we slowly grind to a resolution of this issue. See Comment Period Expires for IAIS Public Consultation on ICS 2.0.
Update, 2018-12-5: The IAIS has released its November / December 2018 newsletter, which reiterates its intentions regarding ICS 2.0:
In a session moderated by Secretary General Jonathan Dixon, the Chairs of the Policy Development, Macroprudential, and Implementation and Assessment Committees [Elise Liebers, Alberto Corinti and Jose (Pepe) Lopez Hoyo, respectively] provided updates on key IAIS initiatives within their respective areas, including revisions to the ICPs and ComFrame, along with progress in developing ICS Version 2.0, and the holistic framework for systemic risk. These projects are all on track, with delivery slated for year-end 2019.
Update, 2018-12-26: ‘Deemed Maturity’ Date for Insurance Issues Changed to 2030-1-31.
Update, 2019-3-22: The International Association of Insurance Supervisors has announced:
The CSFWG will host an ICS Stakeholder Meeting in Orlando on 10 April. The stakeholder meeting is intended to provide a forum for constructive feedback on ICS Version 2.0. Stakeholders who wish to provide presentations on key issues related to the ICS should contact danita.pattemore@bis.org and becky.easland@bis.org by 22 March 2019 indicating the topics they wish to cover. Presentation materials should be provided no later than 29 March 2019. To register, please click here.
Update, 2019-4-6: Responses to the 2018 call for comments on the IAIS Public Consultation on ICS 2.0 have been released.
Update, 2019-5-27: Schedule update consistent with previous estimates.
Update, 2019-11-17: The IAIS has decided against requiring a Principal Loss Absorbency Mechanism in its testing phase. Although such a requirement is still within the bounds of possibility once the testing has been completed and final adjustments are made to the capital requirements rules, such a reversal should not be considered likely without additional supporting evidence.
As an example of FixedReset analysis, and as an aid to PrefLetter subscribers who are referred to previous issues, I am publishing the PrefLetter FixedReset Notes October 2016. It’s rather a large file!
The specifics are outdated, of course, but I hope that the techniques and their justification will be useful to Assiduous Readers.
The theory of Implied Volatility for FixedResets was published in the 2013 edition of PrefLetter and made public last year.
It has now been updated with further explanations, examples and discussion and the 2016 edition may be downloaded by clicking here.
The calculator (an Excel Spreadsheet) has been publicly available for some time, linked on the right-hand navigation panel under the heading “Calculators”.
Many readers will wish to read the companion essay Implied Volatility for Straight Perpetuals as it is conceptually similar with fewer parameters.
Look for the Research Link!
While revising and expanding my essay regarding Implied Volatility for FixedResets I realized that it would be useful to refer to my prior effort regarding Implied Volatility for Straight Perpetuals, which was published in the January, 2010, edition of PrefLetter.
So, the essay Implied Volatility in Perpetual Preferreds (with its addendum, Portfolio Management Implications of Implied Volatility in Perpetual Preferreds) is now publicly available.
In response to overwhelming demand (Assiduous Reader MW wrote me) I have decided to publish my essay Implied Volatility for FixedResets, which originally appeared as an appendix to the September, 2013, edition of PrefLetter.
The calculator (an Excel Spreadsheet) has been publicly available for some time, linked on the right-hand navigation panel under the heading “Calculators”.
Look for the research link!
Update, 2016-2-11: An updated and expanded 2016 edition is now available.
OSFI published a paper in March, 2012, titled Evidence for Mean Reversion in Equity Prices. It wasn’t very good, as I explained in a recent article.
Look for the Opinion Link!
Also available: Draft version with footnotes.
I wrote an article about SplitShares for the Advisor’s Edge Report, which has been published on-line.
Look for the research link!
My article titled 6 safe places for returns in a low rate world has been published on the Star’s Moneyville site.
So far it has two “recommends” and five Facebook likes!
