# Questions tagged [derivatives]

A financial contract whose payoff is linked to the evolution of an underlying security.

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### Non deliverable interest rate swaps (NIRS)

Can you pls explain how the payoff of an NIRS is calculated and what collateral is usually posted (USD or local ccy)? I am especially interested on how the FX risk is incorporated in the pay off and ...
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### Simple arbitrage pricing of bond option

This is Tuckman fixed income security textbook. The text here is trying to price a 990 six month call on a six month zero bond. When we replicate the portfolio, where is the F_.5 coming from? My ...
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### Best Book - Understanding Investment Bank Operations

Could you please recommend Books to read for understanding Investment bank operations in Information Technology ( IT ) Point of view? like develop/support all system involved in FO/MO/BO systems in ...
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### Find a formula for the price of a derivative paying $\max(S_T^2-K,0)$ [duplicate]

Develop a formula for the price of a derivative paying $$\max(S_T^2-K,0)$$ in the Black Scholes model. What I tried: \begin{align*} e^{-rT}\mathbb{E}^\mathbb{Q^0}[\max\{S_T^2-KS_T,0\}] = e^{-rT}\left(...
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### Derivatives: Value vs Notional/Principal amount

I am reading "Options, Futures and other Derivatives" by John Hull. In chapter 1, a section on OTC market size has the following lines. Figure 1.1 compares (a) the estimated total principal ...
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### Notional Value of Worldwide ETD vs OTC Open Interest

I request assistance to find the Notional Value of Worldwide Open Interest of Exchange Traded Derivatives (ETD). As per this FIA link, the total open interest at the end of April 2024 was 1.33 billion ...
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### variation margin affecting futures price

A quote from Natenberg's Option Pricing and Volatility, on stock index futures and how variation margin can change their price. Ignoring dividends, the fair value of a stock index forward contract is ...
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### Why do we use OTM options to extract implied vol?

It is often common practice to calculate implied volatility using puts for low strikes and calls for high strikes, so to always employ out-of-the-money options. Why is this often preferred to using ...
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### What are common parametric forms for VIX smiles?

It is common in SPX markets to fit smiles using Stochastic volatility-inspired and Surface stochastic volatility-inspired parametric forms introduced by Gatheral and Jacquier (2014). In VIX markets ...
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### time value of option proportional to sqrt(time)

I'm reading Natenberg's Options Pricing and Volatility, and in Chapter 18, he mentions this about an example: We can further refine our approximation if we note that an at-the-money option is made up ...
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### Why A Derivative With Intrinsic Arbitrage Cannot Be Valued & Hedged With Assets In Risk Neutral?

I'm attempting to concisely show why a derivative that, by nature, introduces arbitrage cannot be valued using risk neutral pricing tools. Derivative: Buyer is sold a 'call option', with time 0 value ...
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### WN 30Yr UST Futures Conversion Factor vs Delivery Ratio

What is the logic behind using the conversion factor in determining the hedge ratio of deliverable bonds in 30Yr UST futures (WN contracts) throughout the trading life of the contract, but then having ...
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### PFE "convergence"

I'm studying Counterparty Credit Risk. I was reading about Potential Future Exposure (PFE) and I've seen a lot of examples and graphs about how the PFE behaves (as the time horizon increases) for ...
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### Brazil IR swaps and help with new holiday

Brazil has a pending new holiday that is expected to be official in the next month, for date Nov 20. Existing BRL interest rate swaps contracts have a clause that fixed accruals are not impacted by ...
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### What book/resources would you recommend for beginners in IRD? [duplicate]

I recently graduated with a MS degree in Quantitative Finance and will presumably have some work to do with Interest Rate Derivatives (IRD) in the future. Since my experience lies more in the equity ...
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### VIX future's lower and upper bounds

A Tale of Two Indices, by Carr and Wu (Jrl. of Derivatives, Spring 2006) As per the above paper of Carr and Wu (page 24 and 25), the price of a VIX future has for lower bound the fair strike of a ...
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EDIT; I looking for sources where from I could get interest rate derivatives market data? (caps,floors,swaptions, etc, is there data available for exotics ones or are they purely OTC?) I would grade ...
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### Moneyness, implied volatility and option greeks

I know that the more an option is ITM, the more is the implied volatility. I would like to deep dive into the concept, what is the logic that drives this statement? Also comparing an option with a ...
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### Constructing payoff with options

Suppose that COMPANY A has issued a special bond that does not pay any coupons. At maturity T, the bondholder receives the principal (face value) equal to 1,000 plus an additional ...
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### Calculating key dates for a Forward Starting Interest Rate Swap versus a Spot IRS

How are the Effective Dates and Maturity Dates of a forward starting IRS (eg: EURIBOR3M 5Y5Y) handled when the forward starting term ends on a non-business day? And if that date is adjusted, how does ...
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### Any other ways to hedge a bond portfolio against interest rate risk? [closed]

I'm currently taking a (gentle) intro to derivatives class. One of the exercises asked me to discuss duration as a risk measure and to provide alternative methods of hedging a bond portfolio against ...
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### Pricing look-back option

I have the monthly price data of a stock starting from December 2020 and I am considering a EU style look-back option issued in December 2020. The payoff at maturity of the look-back option is given ...
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### Barrier Reverse Convertible on interest rate

I'm trying to find the price of an barrier reverse convertible on interest rate - https://structuredproducts-ch.leonteq.com/isin/CH1251797945. I have simulated the underlying interest rate by Vasicek ...
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### futures exposure targeting (spot vs futures price)

I'm confused over if I should use spot or futures price when targeting a certain exposure. There are many websites that state you should use the contract size * futures price. Other websites, however, ...
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### How to convert the parameters of multi-factors cheyette model (quasi-Gaussian model) from tenors to factors?

The book "Interest Rate Modeling" by Andersen and Piterbarg is an extermely fascinating book on interest rate derivatives. Recently, I have encoutered some issues while reading this book. ...
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### Why historical data of futures contract price include data after settlement date of the contracts?

I am studying historical data of futures contract prices. I found there are price data after the settlement date of the contract. For example, for Hang Seng Futures with expiry date of Jun, there are ...
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### How are VIX options priced in a mean-reverting framework?

If a trader assumes that the VIX follows a mean-reverting process like the Orstein-Uhlenbeck process, how would they price this non-martingale asset? My intuition tells me a trader would use doob-...
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### From parameter risk (sensitivities) to market risk (sensitivities)

In models where the underlying is not modeled directly - such as in the HJM framework or short rate models - how does one then compute the Greeks, i.e. sensitivites wrt. market variables. As an ...
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### Why are we so focused on Zero Coupon Bonds?

In fixed income markets there seem to be two prevailing term structure modelling approaches: Market Models HJM Framework In Market Models, such as the LIBOR Market Model (LMM) and SABR it is common ...
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### Analyzing the Impact of S&P Volatility Shift on ATM Straddle Sale: Calculating Loss/Gain[black scholes]

Black scholes:The 1-month implied volatility of S& ;P is 16. The slope of the skewness curve is -1 point per 1%; For example, the 99% exercise trades at a premium of 1 vol point. regarding the ...
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### FX FORWARDS Calculating funding cost and wether funding will be expensive or not

Lets say for example my TN for USDHKD point per day spot is -1.9467 and for 1mnth it is -1.4142 and the notional is 100m HKD dollars. Would you say more or less I would be flat in terms of funding ? ...