Questions tagged [derivatives]
A financial contract whose payoff is linked to the evolution of an underlying security.
425
questions
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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 ...
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0answers
46 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 ...
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0answers
67 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
93 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 ...
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2answers
566 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 ...
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19 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 ...
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2answers
113 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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44 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
301 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
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1answer
107 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 ...
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21 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 ...
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2answers
77 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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47 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 ...
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1answer
46 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
35 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
88 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 ...
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3answers
113 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....
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2answers
87 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 ...
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1answer
110 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
75 views
How are total return swaps quoted?
A) spread $s$ only.
B) spread subtracted from the funding, e.g. LIBOR, rate, i.e. $(r-s)$.
?
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1answer
103 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
142 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 ...
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2answers
107 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 ...
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0answers
60 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, ...
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2answers
122 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 ...
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1answer
114 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_{...
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1answer
51 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
52 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 ...
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0answers
31 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
79 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 ($B = (B^1, B^2, B^3)$...
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0answers
39 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 \$...
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27 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 ...
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27 views
Interest rate futures notional
I was wondering what is the notional used to calculate tick values when the underlying of the futures is the average of an overnight rate (eg 1m SONIA futures, 1m EONIA futures, etc.)?
When the ...
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0answers
71 views
What makes modeling interest rate derivatives very difficult compared to equity derivatives?
I understand while equity derivatives require the modelling of stock price at expiry, interest rate derivatives typically require modeling both the expiry and tenor, thus increasing the dimensionality ...
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2answers
53 views
Equations to Test of local linearity of a derivative security [closed]
Friends any hint as to why is this set of equations a test of linearity of a derivative security?
From Taleb - Dynamic Hedging pg. 11
,, Derivatives are not always ...
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1answer
78 views
Rolling to a non-front month future contract?
I hedge my US positions with M6B, a GBP/USD future.
Every time I roll my contracts, I ask myself "why is there so little liquidity beyond the next three months?" Surely there are people that ...
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0answers
32 views
CMS Convexity adjustment with negative interest rates
I need to price bonds with CMS-linked coupons. In order to determine the convexity adjustment to apply to the forward rates, I would use the formula that appears in Hull's Futures, Options and other ...
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vote
3answers
150 views
options on futures
For options on futures in the black model, I do remember that $F$ appearing in the formula must be the forward at maturity of the option (and not the future price).
So, say we have a future maturing ...
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2answers
102 views
Derivatives to short municipal bonds based on cryptocurrency [closed]
Can you short municipal bonds with a cryptocurrency derivative? This is notoriously impractical in traditional finance, but there could be a crypto-based derivative designed around it. Is this a thing?...
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1answer
94 views
Calculate zero recovery discount curve from bond yields and cds prices?
Clarifying the below:
Given the prices of bonds that are not trading in distress as yet (so yields are meaningful), and data on the CDS spreads, I’ve been looking for some approaches for estimating a ...
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0answers
83 views
What does it mean In FX trading you using a T/N swap to avoid physical delivery of the currency? [duplicate]
I understand you use T/N swaps to rollover FX positions and so avoid physical delivery but I dont quite get how this happens in reality. For example, if I am long EURUSD and need to deliver/sell USD ...
3
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1answer
115 views
Fixed Income Index, ETF Replication
Can anyone please explain how fixed income index are actually replicated (in an ETF) by asset managers ? I looked online, everyone says they do sampling (stratified sampling) which makes sense but I ...
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0answers
43 views
How To Create Daily Leverage?
After doing some analysis on daily leveraged funds one of the biggest risk factors I find is regulatory risk. My goal is to have a risk parity portfolio with daily leveraged funds but if some of these ...
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1answer
82 views
Swaption decomposition - forward options and option on options
I am following through the book "An Introduction to Financial Derivatives" by Salih Neftci. According to the book, a swap can be decomposed into cash flows from forwards and options.
I am ...
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0answers
51 views
Can you explain grid(or lattice) for option pricing, and explicit and implicit finite difference methods in a simple way?
I am a student learning about option pricing. I understand the concept of binomial trees, trinomial trees, black scholes and monte carlo simulation for option pricing. However, I've just had a lecture ...
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26 views
Quantifying the difference between 2 Foward Curves
I'd like to quantify the difference between 2 Foward Curves. In particular, I'd like to get a single metric which represents the magnitude of change between curve A and curve B. I'd like to plot this ...
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0answers
112 views
Are rough stochastic volatility models used on the street for equity derivatives ? (2020)
I'm building out some stochastic vol models for pricing exotic equity derivatives. What's the state of the art on the street?
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1answer
78 views
Trying to understand brazil derivatives market
I am trying to get a better understanding of brazil's market, specially derivs.
I know they have certain instruments such as "Convertibility" (based on the yields spread between onshore and ...
0
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1answer
67 views
Longstaff-Schwartz for any optimal stopping
Let's say I have the stock of General Motors and I assume some fancy model for the price of this stock and I have to sell it within a month. Can I use Longstaff-Schwartz algorithm to determine the ...
