Make whole clause and Up-shock: Difference between pages

Revision as of 20:53, 29 October 2016

Interest rate risk analysis and management.

An up-shock is a simplified model of an upward change in interest rates.

The up-shock is:

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-''Securities''.
+''Interest rate risk analysis and management.''
-A strong form of protection for lenders/investors in securities, designed to mitigate the adverse effects of call risk for investors.
+An up-shock is a simplified model of an upward change in interest rates.
-Under a make whole clause the borrower/issuer has to value the cash flows beyond the date of the early call/redemption at the government bond yield.
+The up-shock is:
-This potentially makes it prohibitively expensive for the issuer to take an early redemption.
+*Immediate; and
+*Permanent; and
-The consequence of a make whole clause for the investor is that they can re-invest the redemption monies in government stock, thus preserving their originally expected cash inflows at lower risk.
+*Affects all interest rates by an equal amount.
-Make whole clauses are similar in their effect to Spens clauses.
-Sometimes known as a make whole ''provision''.
 == See also ==
-* [[Call risk]]
+* [[Down-shock]]
-* [[Clause]]
+* [[Interest rate risk]]
-* [[Security]]
+* [[Non-parallel shock]]
-* [[Spens clause]]
+* [[Parallel shock]]
+* [[Shock]]
-[[Category:Accounting,_tax_and_regulation]]
+* [[Yield curve risk]]
-[[Category:Corporate_financial_management]]