Questions tagged [derivatives]
A financial contract whose payoff is linked to the evolution of an underlying security.
438
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33 views
Pricing of a barrier reverse convertible in python with monte carlo simulation
I'm a finance student and try to do the pricing of a given barrier reverse convertible. This has to be done by a Monte-Carlo-Simulation in Python.
The underlying is a stock of ING Groep N.V.
Strike ...
-1
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0answers
13 views
Conceptual doubt on when to use cost discounting [closed]
In this question I have used put-call parity twice to get the discounting factor for time period 0 to t (which I feel is of no use for this question). Also I found the initial payoff and final payoff. ...
2
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1answer
81 views
Martingale proof: Call-prices must be increasing in maturity
I have observed that IV is increasing with time to maturity by using market prices and plotting IV (from Black-Scholes) against log-moneyness, $\log(S_t/K)$. $S_t$ being the price of the stock at time ...
2
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1answer
61 views
Show that the price of a LIBOR rate paid in advance is a linear combination of caplets
Let $L(t, T_1, T_2)$ be the forward LIBOR rate at time $t$ for the period $T_1$ to $T_2$.
If a security pays some multiple of $L(T_1, T_1, T_2)$ at time $T_1$, how can we show that the price of this ...
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0answers
23 views
Higher Capital and margin requirement for bilateral Non-central cleared OTC Derivatives
The OTC Derivatives reforms after Global Financial Crisis include higher capital and margin requirement for bilateral traded OTC derivatives?
I have the followings questions:
The higher capital ...
0
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1answer
26 views
Valuing Conditional “All Or Nothing” Multi Asset Options
I would like some insight as to how to value modified rainbow options on multiple assets:
For example: A multi asset option, Call GOOG with $S_t$ \$1600 that you may exercise if and only if you also ...
0
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1answer
57 views
Bachelier call option derivative w.r.t strike
I tried to take the partial derivative of the Bachelier call function w.r.t. strike price K (eqn 2.2 here), but my result is not lining up with what is shown on page 43 here.
2
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1answer
326 views
Risk Neutral Valuation, Drifts and Calibration
Lets consider a pricing model like Vasicek.
Apparently, if you calibrate a derivatives pricing model to market prices this gives you risk neutral parameters. Its not clear to me as to WHY this will ...
0
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1answer
74 views
FX hedged investments
I was reading FX hedged investments do not have an impact on the FX rate. For example, a Japanese fund buying US treasuries fully FX hedged. I understand the hedging is usually done through short term ...
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2answers
107 views
Hull on Futures: I am not able to understand this sentence
The usual rule chosen by the exchange is to pass the notice of intention to deliver on to the party with the oldest outstanding long position.
...
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0answers
32 views
Futures positioning reported by CFTC
How is the net futures position calculated by the CFTC? For instance, GBPUSD net contract is positive in the CFTC report, what does it mean given that for each buyer there is a seller?
0
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1answer
35 views
Margin Requirement model for CCP and non-central cleared OTC derivatives
What the models for computing margin requirement for central counterparty (CCP) and non-central cleared OTC derivatives.
0
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1answer
67 views
India's FX foward market
https://www.bloomberg.com/news/articles/2021-05-04/india-asks-state-banks-to-protect-dollar-assets-on-cairn-concern
Based on this article USDINR forward premium has spiked as there is abundant USD ...
0
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1answer
49 views
How to convert CDX spread to price?
Example: assume the current HY CDX is with 5% coupon. The spread is around 300bps, with a duration of around 4 years.
Would you pls help me to understand why we can proxy the HY CDX price as
100+4*(5%-...
10
votes
2answers
390 views
Differences between main classes of interest pricing derivatives models
There seems to be 3 main classes of interest rate pricing models: 1) Short rate models, 2) Heath Jarrow models and 3) Libor Market Model. My book doesnt seem to explain why we need all these different ...
1
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1answer
149 views
FX Options price vs implied vol
From the screenshot below, what is the difference between the option price by strike in the table versus the implied volatilities by delta in the chart at the bottom?
https://www.investing.com/...
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2answers
141 views
Currency trades
I usually read statements as the below:
"Bank A recommends long positions in the yuan against the Singapore dollar"
How are these trades usually implemented? Borrow SGD and convert into CNY (...
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0answers
30 views
Commercially redistributable derivative market data source
Is there any derivatives market data source that gives permisson to use this data in a financial model and then sell a product with it? (derivatives valuation for example)
I'm looking for a cheap ...
2
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0answers
63 views
Are there any studies on the link between energy markets and hedging-strategies for Cryptocurrency mining?
Full Disclaimer: I first asked this question on Bitcoin.SE, however I feel like my question is more relevant to this site as there would be wider knowledge and insight of some better sources or ...
4
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1answer
102 views
How does the underlying get delivered for electricity market derivatives?
I have been reading around energy markets recently and recent schemes such as Voluntary Carbon Markets, similar to the 'cap and trade' style of the Kyoto Agreement in 1997.
I have been reading in ...
3
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1answer
121 views
What is the Radon-Nikodym derivative in the Heston model?
It is clear to me that $$ \frac{dQ}{dP} = e^{-\lambda W_T-\frac{\lambda^2}{2}T}$$ is the Radon-Nikodym derivative that defines the change of measure in the framework described by Black and Sholes. But ...
6
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2answers
700 views
Relationship between Vega and Gamma in Black-Scholes model
my question is the following one: I don't manage to prove that, in Black-Scholes model, single-signed Gamma options have values that are monotonic in the volatility. I am looking for an exhaustive and ...
0
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0answers
27 views
Is the market price of risk deterministic or stochastic in the Heston model?
I am recently digging into the Heston model and I have noticed that every author refers to the market price of risk simply as $\lambda$, or sometimes it is more clearly specified to be bi-dimensional ...
0
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2answers
127 views
Use of CNY and CNH derivatives
I was wondering what are the reasons why investors use USDCNH forwards vs NDF on USDCNY? Do you usually pick CNH for trade reasons, while CNY more for speculation as these are USD settled?
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0answers
60 views
Replicating portfolio in the Heston model
Given the Heston model $$dS_t=\mu S_tdt+\sqrt{\nu_t}S_tdB_{1,t}\\ d\nu_t=k(\theta-\nu_t)dt+\eta\sqrt\nu_tB_{2,t}$$
how should the replicating portfolio $V_t$ for the derivative $F_t$ be composed?
I ...
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1answer
346 views
How do market makers calculate the IV for options?
This might be silly or basic question but I'm wondering how do a market makers do decide on fixing an option IV on certain level ? how do they do theirs calculations ? Thank you
0
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1answer
123 views
Hedging with FX swaps
I am trying to get the mechanic of the swap rollover. Funds usually hedge FX risk of their long term foreign assets (eg UST) with short term FX swaps (usually maturity < 1yr), by rolling over fx ...
0
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0answers
22 views
Derivatives notional amount in BankFocus
I'm searching for the notional amount of derivatives in banks' balance sheets. I'm using "BankFocus" (ex Bankscope) to download data. In balance sheet i find just the fair value of ...
0
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2answers
105 views
How is calculated the futures/forward convexity adjustment for FX?
I could find lots of stuff online for IR derivatives but it seems there isn't too much on FX for this specific adjustment.
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0answers
54 views
Valuing Option Credit Spreads
I'm trying to come up with a metric to value and compare spreads. One way that I was doing this was to compute the Expected Value of the spread.
To calculate the expected value I used the following ...
0
votes
1answer
61 views
FX swap implied yield from bloomberg
I am trying to reproduce the bid EUR implied yield I see in the screenshot below for 1y tenor which is -0.6226%.
EUR implied yield bid = spot_bid/fwd_bid *(1+i_USD_bid) - 1
Inputs from BBG terminal:
...
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0answers
16 views
span for spreads using options
I am trying to calculate the margin required for a spread in futures. The cme rules says that they use SPAN which goes through a few different cas to see what happens to the portfolio. If I have 2 ...
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0answers
43 views
Collateral and discounting of future cash flows
I am a beginner in this space and did some research on how the collateral posted affects the choice of the discounting curve in derivatives transactions.
We have two scenarios based on the PV of a ...
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2answers
90 views
Bid Price of a Forward?
Say I am a market maker.
The ask (me selling it) formula is pretty common in textbooks etc by no arbitrage:
$$F = S \cdot \text{exp}(r-d)$$
where $r$ is interest rate and $d$ -- dividend.
Again, by no ...
1
vote
3answers
125 views
Why might a cross currency swap from EUR into USD have higher CVA than a cross currency swap from USD into EUR?
I was having a discussion with a colleague in the industry, who mentioned in passing that CVA on a cross currency swap from EUR into USD (pay EUR) is always higher than if paying USD and receiving EUR....
2
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2answers
130 views
FX Forwards collateral and discounting
What is the market convention for discounting the future cash flows of FX forwards? In particular, I would be interested to know what discounting curves are used for both collateralised and not ...
0
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1answer
416 views
resettable/MtM cross currency swaps
I am trying to understand the mechanics of resettable xccy basis swaps and put together a numerical example. I'd like to know if 1) periodic interest payments are calculated on the original notional ...
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0answers
83 views
How are total return swaps quoted?
A) spread $s$ only.
B) spread subtracted from the funding, e.g. LIBOR, rate, i.e. $(r-s)$.
?
0
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1answer
107 views
Currency swap terminology
With reference to cross currency swaps, what does it mean to receive the basis?
"Demand from Japanese institutions to receive basis (USD funding) increased due to emergency dollar demand due to ...
2
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1answer
163 views
AUD funding rates
I am looking into into AUD rates and I am a little confused. I tried to summarise below my doubts.
FX swap basis (difference between AUD FX swap implied rate and AUD OIS rate). Before covid-19 it has ...
1
vote
2answers
118 views
Method of comparing two option pricing models?
I am currently writing a small paper comparing the Black-Scholes formula to the Bachelier model.
However I am wondering how exactly I should compare the two models?
Obviously I am comparing the prices ...
1
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0answers
63 views
Cost of shorting currencies
I thought cost of hedging/going short on a currency with a forward was given by F/S-1 but it seems the author states 0.25% (see below). Am I missing anything (transaction costs, balance sheet costs, ...
0
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2answers
145 views
Carry trade question
Usually carry trades involve borrowing in a low yield currency and invest in a high yield currency. For example, I borrow dollars and invest in Brazilian real. I then use a rolling FX swap to hedge ...
1
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1answer
116 views
Pricing of $(S(T_0)-S(T))^+$
Problem: Consider a new derivative that at time $T$ pays $Y =(S(T_0) − S(T))^+$
where
$0 < T_0 < T$ is a fixed date.
(i) Show that the arbitrage-free of Y at time $t = T_0$ is given by $\pi_{...
1
vote
1answer
91 views
Japan benchmark rates
Can you please confirm on the following?
The difference between TONA (also called TONAR), JPY Libor, TIBOR is that:
JPY Libor, TIBOR are based on quotes from panel banks. The difference between them ...
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1answer
55 views
Risk-Neutral probability deduction [closed]
Could anyone show me how to get the second row equation from the first row equation please? For each letter, $p$ is the risk-neutral probability in the risk-neutral world, $u$ is the up factor for the ...
0
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0answers
32 views
Brazil FX market “cupom cambial” [duplicate]
I am trying to understand the role of cupom cambial (onshore dollar rate) in relation to the BCB swaps which are domestic NDF settled in real.
"The cupom cambial is priced in basis points as an ...
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0answers
89 views
Non attainable claim - Incomplete market
I am wondering whether there is a standard procedure to find a non attainable (i.e. non replicable) asset in an incomplete market.
As an example, let us have the following market ($B = (B^1, B^2, B^3)$...
0
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0answers
40 views
Hypothetic derivative that absorbs underlying volatility
Market participants are usually assumed to be risk-averse and striving to improve the Sharpe ratios of their portfolios. Thus, if we have an asset A, which is expected to return between \$900 and \$...
0
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0answers
29 views
Future forward convexity adjustment as the expected profit from reinvesting margin payments?
Having looked at the formula for the convexity adjustment as a function of the covariance between rates accruing till maturity and asset price, I have an intuition that the difference between fair ...
