Timeline for Exotic Trading Basic Questions - Banking
Current License: CC BY-SA 4.0
10 events
| when toggle format | what | by | license | comment | |
|---|---|---|---|---|---|
| Jul 29, 2019 at 22:02 | comment | added | XTrading | Thanks a lot Will for your explanations ! | |
| Jul 25, 2019 at 12:27 | comment | added | will | @XTrading ... When a load of cash is brought in from a trade, it is deposited internally (be it automatically or manually) and you lock in the same rate used when selling the trade (if you don't depo, it should be automatic on a rolling basis, leaving you exposed to a funding rate). | |
| Jul 25, 2019 at 12:27 | comment | added | will | @XTrading When trades are priced, the discounting that's used is not the risk free rate, libor, or some externally observable curve. Instead, it is discounted using an internal rate curve specific to the seller (i.e. the rate the issuer expects to be able to achieve on cash) - you can expect this rate to be close to a risky discount curve using the issuer's credit rating... | |
| Jul 25, 2019 at 6:58 | comment | added | XTrading | Hi will, one last question. What will the traders do with the notional they receive when they sell an Autocall ? How do they invest it, do they use a term repo to invest the cash until the next valuation, what do they do ? | |
| Jul 22, 2019 at 6:09 | comment | added | will | @bhutes i. KO is not always good no, it depends on what the structure has done throughout the trade and how it has been hedged. You are correct though that an early ko results in less dynamic hedging. ii. The structures are usually short delta and short vol (though "bearish" autocallables exist, where the autocall occurs if the underlying price is lower than the barrier, these are short delta and still short vol). How delta changes as you approach the barrier depends on the vol and shape of the fwd curve, it can be either negative or positive. | |
| Jul 22, 2019 at 2:26 | comment | added | bhutes | Hi Will / XTrading ... for the Autocallable product, is it always true that - (i) KO is always good for the bank, since we already made our Day1 P&L and KO means no more hedging needed (so, sooner KO happens, lower the hedging costs)?, (ii) What are the signs of the usual greeks on Day 1 (in a typical autocall trade) from the banks perspective - (A) Is it true that Delta is negative (since client is delta positive - he bets a yield enhancement based on upside in the equity), albeit as the KO barrier is approached delta for the bank becomes positive, (B) Vega is also negative for the bank ?? | |
| Jul 21, 2019 at 22:42 | comment | added | XTrading | Thanks a lot for your answer Will it is much more clear. How does it works for the coupon payment, how do they hedge against it ? Do you have any useful website, book or coursera you would recommend to get started ? | |
| Jul 21, 2019 at 21:52 | vote | accept | XTrading | ||
| Jul 21, 2019 at 21:49 | vote | accept | XTrading | ||
| Jul 21, 2019 at 21:51 | |||||
| Jul 21, 2019 at 21:44 | history | answered | will | CC BY-SA 4.0 |