Analysis of Deals-Players-risk -Interest Rate Derivatives

Most of the swaptions, libor Caps and floors and CMS floors that I have seen are from the following players1) Inter Dealer market2) Customersa. Hedge funds b. Mortgage banksc. Agenciesd. Hedgers and speculatorse. Insurance companiesMentioned below an array of players with varied interests at different points on the volatility surface. These players judge the market and their own unique needs and buy or sell options.Interdealer brokers· JP Morgan Chase Bank NA-New York Branch· Goldman Sachs Capital Markets LP· Deutsche Bank AG-New York Branch· Lehman Brothers Special Financing Incorporated-New York Branch· Merrill Lynch Capital Markets Bank Limited-London Branch· Bank of America NA· Credit Suisse International-London Branch· Citibank NA· Bear Stearns Bank PLCHedge Funds· PFG Relative Value Opportunity Master Fund LP· Element Capital Master Fund Limited· Elliott International LP· Parkcentral Global Hub Limited· Caxton International Limited· Citi Vega Select Limited· DE Shaw Dihedral Portfolios LLC· FrontPoint Fixed Income Opportunities Fund LPMortgage Banks· Washington Mutual Bank· Wells Fargo Bank NAAgencies· Federal Home Loan Bank of Atlanta· Federal Home Loan Bank of New York· Federal Home Loan Mortgage CorporationInsurance Companies· MetLife and other insurance companiesInter Dealer market main function is to provide, liquidity to the market. So they are generally market facilitators. Hedge funds take a view on the market and execute strategies. Deals done by these clients can be analyzed and reengineer the strategy behind the flow. Agencies are main creators of the volatility through callable debt and mortgage backed securities. This group has special interest to hedge the assets on their books. Hedgers and speculators have very unique need to protect their assets so they enter into options market.Player Main Role Needs ProductsInter dealer Facilitate the market Bid Ask spread all productsMortgage banks Holders of mortgages hedge monthly cash flows Amortizing Caps/Swaptions Agencies issuers of callable debt Hedge optionality Long dated swaptionsIssuers of MBSInsurances seller of GIC, Annuities Hedge long term liabilities CMS Caps/FloorsOthers CRA hedge using digitals Digitals