Questions tagged [derivatives]

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

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35 views

Data sources on derivative book composition for large investment banks

Is anyone aware of a data source for the composition of the derivative books across asset classes for large investment banks? As an illustrative example with dummy figures, this could be a database or ...
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Is the initial value of the portfolio replicating a forward zero?

This is from the book Financial Calculus: An Introduction to Derivative Pricing by Martin Baxter. By choosing appropriate weights in a portfolio of a stock and cash bond you can replicate the payoff ...
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Deriving the Heston-Hull-White PDE

I'm trying to derive the Heston-Hull-White PDE. The correct backwards PDE is equation (1.3) of this paper on page (2). I will begin deriving the forward PDE, but switching between the two is trivial. ...
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135 views

Barriers on structured notes

I asked a question here: Structuring and Customization Thanks to all the contributors. However, I now have a follow-up question. I would like to buy barrier options and I was informed from that post ...
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How to calculate net exposure on a Interest Rate Swap (and on derivatives in General)?

I would like to know how to measure Exposure on swaps (IRS, TRS...) in general . Example, if a party A has a OTC position of 100 million USD in IRS with party B, is party A exposure = 100 million ...
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Implied cross currency curve

For EM countries without a liquid xccy curve, how I can imply it from local government bonds or swaps?
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185 views

What to do if certain parameters are not market observable?

Lets say I have no clue on correlation between 2 equities in the market (i.e. i don't have an observable market price). What is the best way to go about marking this correlation for lets say the best ...
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248 views

Structuring and Customization

It seems complex derivatives in particular exotic options are not available at any retail broker. Can a regular retail trader get access to these instruments? Maybe through prop firms or banks? ...
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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 ...
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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 ...
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Innovative ways of visualizing financial data

Finance is drowning in a deluge of data. Humans are not very good at comprehending large amounts of data. One way out may be visualization. Traditional ways of visualizing patterns, complexities and ...
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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 ...
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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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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 ...
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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 ...
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340 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 ...
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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.
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355 views

Exercise Probabilities Vanilla Cap/Floor

When looking at the discounted pay-off formulas of a vanilla caplet and a vanilla floorlet $\frac{\Delta\tau}{1+r_k\Delta\tau}\max(r_k-r_{cap},0)$ $\frac{\Delta\tau}{1+r_k\Delta\tau}\max(r_{floor}-...
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1answer
76 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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108 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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1answer
174 views

Callable Total Return Swap pricing

I need to price a callable Equity Return Swap by Accrual. ERS has property callable T+1 and I don't get it. Does it mean that when a call happen we fix a price that and pay Accrual the next day? Could ...
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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?
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36 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.
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1answer
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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 ...
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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 ...
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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%-...
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198 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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143 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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137 views

Can you predict MTM gain or losses on future contract?

I am working on a structured product where I am investing some percentage of invested amount in futures contract. I have created a bull put strategy and I will calculate the delta positions of that ...
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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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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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91 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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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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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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124 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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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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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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109 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 ...
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1answer
361 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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132 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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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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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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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
77 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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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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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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3answers
138 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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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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149 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
612 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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