# Questions tagged [derivatives]

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

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### Duration of forward starting swap

For a spot starting interest rate swap, the duration is calculated as the duration of the fixed rate leg less the duration of the floating leg. Each of these calculations is akin to calculating the ...
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### What models are used for pricing cliquet options (esp. for Asian Equity underliers)? How good is Bergomi model?

What are the most common models, actually used by trading desks for Asian underliers, for pricing cliquet options? I would like to know both - (1) the production model used for daily P&L, and ...
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### Compute the price of a derivative

Consider the payoff function \begin{align*} f(x)=\begin{cases} 3 & \text{if }x\leq 30, \\ 33-x & \text{if }30<x<35, \\ -2 & \text{if } x\geq35. \end{cases} \end{align*} How would I ...
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### Finding todays price of a derivative

Today's market prices for European call options $c(T;K)$ and put options $p(T;K)$ with maturity T and any strike K. Let $B_t = e^{rt}$ be the price of the risk-free bond and St the price of the stock. ...
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### What happens to both sides of an inflation swap agreement if there is deflation?

If there is deflation does the Inflation receiver not only pay the fixed leg but also receives a reduced CPI? I.e. does he lose twice?
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### When would open interest equal trading volume?

I know the difference between open interest and trading volume. Open interest is the number of contracts, long or short, outstanding. Trading volume is the number of contracts traded in a day. ...
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### What is the name of these digital basket options?

Consider a basket of correlated assets $(S_1(t),\ldots, S_N(t))$, as well as a vector of strike prices $(K_1,\ldots,K_N)$, and let's look at the following European payoff types: An option that pays 1€...
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### Why would a buyer buy a Warrant vs an Option, both having the same economics

Assume you have a Warrant and an Option both with the same economics i.e strike, expiry, type etc. Also assume that the Warrant has been issued by a high grade reputed issuer (i.e there is a almost a ...
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### If short rates $r(t)$ do not determine the bond prices $P(t, T)$, then what is the basis for short rate models?

The question title says it all: We know that in general, specifying the short rate $r(t)$ does not specify the bond prices $P(t, T)$. So how can a model for short rates—for example the Vasicek model—...
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### Valuation of Total return swaps (TRS)

I have seen a TRS being valued which has an index as underlying on the asset side. It also has a coupon rate associated with it. Asset leg is calculated by taking ...
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### Difference between FRA and a zero coupon swap

Wanted to know the difference between an FRA and zero coupon swap with both legs having payment at maturity. If the zero coupon swap is forward starting, will it be equivalent to an FRA?
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### Difference in utility of cap/floor and FRA

What is the difference in utility for cap/floor and FRA? To me their function looks very similar. Are they used for different objectives. One thing I know in difference is that the pay off for cap is ...
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### Banks' use of written interest rate options

I study US commercial banks data. I look at the notional amounts of their different OTC interest rate derivatives for the recent years. When I look at non-dealer banks (i.e. end-users), I find that ...
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### Black Sholes option pricing with all but Delta [closed]

I'm trying to setup a little option pricing model in excel. I have all the information for the inputs (interest rate, IVs for different deltas, time to expiry, strike price, underlying price) but what ...
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### Solutions for Paul Wilmott Derivatives Book

I am looking for solutions manual for Derivatives, "the theory and practice of financial engineering". I'm not sure if the manual is published ever but I couldn't get it. I would be more than happy ...
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### Swap Pricing - Using forward rates vs using par bond after first floating payment

There seems to be two different methods I have come across for valuing a Interest Rate Swap - specifically the floating leg. One method described by Hull: incorporates the cashflow from the first ...
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### Any good book recommendations for learning The Greeks?

I am interested in getting a good "feel" or intuition for the BSM Greeks. Specifically, i'm looking for a book which is light on the math (but not too light) and easy to read and understand. I am also ...