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X5.7 - ii - ART

V

Viki2010

Member
Just wondering why the list of ARTs does not include TRORS?
 
TRORS are not mentioned in Lam's list of ART (p97 of first edition).

It would not be unreasonable to add them to the list - but perhaps they are not very "alternative"?
 
Simon James said:
TRORS are not mentioned in Lam's list of ART (p97 of first edition).

It would not be unreasonable to add them to the list - but perhaps they are not very "alternative"?
Click to expand...

Yes, I have checked Lam and they are not on his list. What do you mean they are not very alternetive? They seem to be an alternative for CDSs.
 
Lam categorises risk transfer products as traditional (eg insurance), derivatives (eg swaps) and then ART (mixing features of insurance and capital markets).

So, "alternative" in this context means "non-traditional" or "innovative" rather than simply "replacement for".
 
Simon James said:
Lam categorises risk transfer products as traditional (eg insurance), derivatives (eg swaps) and then ART (mixing features of insurance and capital markets).

So, "alternative" in this context means "non-traditional" or "innovative" rather than simply "replacement for".
Click to expand...

Thank you. My question is why TRORS is not classified as an alternative product.
I don't see why not.
 
Surely the point is that TRORS is a swap and therefore falls far more naturally into the derivative category. ART would normally signify an alternative to a traditional insurance product. TRORS doesn't really come into this category.
 
td290 said:
Surely the point is that TRORS is a swap and therefore falls far more naturally into the derivative category. ART would normally signify an alternative to a traditional insurance product. TRORS doesn't really come into this category.
Click to expand...

Thank you.
 
If anything it's the treatment of CDSs that feels odd to me. Arguably there's a thin dividing line between derivatives and insurance. However the fact that CDSs are tradable combined with the possibility of naked trading would suggest to me that a CDS is a derivative rather than a form of ART.
 
td290 said:
If anything it's the treatment of CDSs that feels odd to me. Arguably there's a thin dividing line between derivatives and insurance. However the fact that CDSs are tradable combined with the possibility of naked trading would suggest to me that a CDS is a derivative rather than a form of ART.
Click to expand...

ok, but of ST9 the CDS is an ART while TRORS is not....:cool:
 
Today, I would place CDSs in the "mainstream derivative" camp. Even when Lam wrote the book 10 years ago the CDS market was worth $3.7trillion. Perhaps it was "new" for the uses he envisages.

Anyway, describing something as ART (or not) is largely subjective. Other than Lam's list and the CR definition, examiners will not a have a definitive view on what is or is not ART. They will be more interested in you being able to discuss how risks are transferred by such vehicles.
 
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