Questions tagged [fx]

The foreign exchange market (forex, FX, or currency market) is a global, worldwide-decentralized financial market for trading currencies. Commonly traded instruments include spot, forward, swaps, futures, and options. The FX market is the most liquid financial market in the world. There is no unified or centrally cleared market.

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76 views

FX Futures pricing formula

I'm reading Paul Wilmott's Introduces Quantitative Finance and stuck a bit with formula $F = S(t)e^{(r-r_f)(T-t)}$ for FX futures pricing. I don't get how to incorporate $r_f$ into the formula, could ...
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23 views

Framework for hedging fx and utilizing correlation between asset returns

Can anyone point me in a direction (research paper, books, ..) which developes a framework/strategy for hedging currency exposure for an international bond portfolio? This paper finds optimal ...
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24 views

FX Options Greeks: Is there a meaning in converting the sensitivities values in different currencies?

Suppose you have a Call on JPY, domestic currency is USD The price will be in USD Let's say delta = 0.93 Does it make sense for any reporting reasons to convert this value into JPY ? What is even the ...
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1answer
44 views

Basic FX-Forwards trading Guide

What fundamentals or other factors should one follow to trade currency Forwards intraday?
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1answer
80 views

Constructing an FX forward curve

A lot of our clients are currently using interest rate parity as a means of constructing an FX forward curve. For instance, to construct the USD-GBP FX Forward curve, they are using the USD LIBOR, ...
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1answer
30 views

FX Forward last day first day premium

How exactly do you trade the turn of the year/quarter effect (also known as last day-first day effect). How do you track this data, is it directly quoted in the market or is it interpolated?
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52 views

How would one go about pricing a FX future?

What model/equations would I require to calculate the price for a foreign exchange future? This is in an attempt to mitigate foreign exchange risk. Also, how could one measure a business's exposure to ...
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32 views

Option price with underlying growth rate distinct from discount rate

Consider a European style option. The price equation is $$\frac{\partial V}{\partial t} + \frac{1}{2}\sigma^2 S^2 \frac{\partial^2 V}{\partial S^2} + rS\frac{\partial V}{\partial S} - rV = 0 \tag1$$ ...
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1answer
53 views

Covered Interest Rate Parity with FX Spot-Adjustment

The Covered Interest Rate Parity for FX is often quoted simplistically as $$ X_T \quad=\quad X_S \cdot \frac{D^{base}_T}{D^{quote}_T} $$ where $X_t$ is the (projected) FX rate at time $t$ (denoted as $...
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19 views

Parametric Simulation of FX forwards

I need to simulate FX forwards for risk management (VaR) purposes. The problem is that the FX forwards are derived from : 1) Spot 2) int rates 3) and the basis. So the question is how do you ...
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34 views

Can you derive fx correlations given the historic correlations of base pairs

Say for USDJPY and GBPUSD, I have the historic data and calc the volatility and correlation between these pairs. Because GBPJPY = GBPUSD x USDJPY. Can I calculate the correlation for GBPJPY directly ...
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71 views

Computing FX forward returns using spot returns and an existing term structure

Sorry for the naive question, I am new to the area. I have YTD spot returns on the USD/GBP pair and a forward yield curve. How would one go about computing the forward returns in 2 years using this ...
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67 views

pricing deliverable vs non-deliverable fx forwards

I am trying to link these two questions together Pricing a regular FX forward This is a contract (say USD vs JPY) where you exchange 2 currencies at maturity at a pre-determined rate, while no ...
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1answer
56 views

Achieving desired fx exposure with using minimum pairs possible

Let say my algorithm tells me to get the following positions through opening fx positions: CUR NET POSITIONS GBP 236.96379 USD -310.58000 CHF 0.02000 There are 2 ways to achieve this: Long ...
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47 views

Replicating PNLS of FX Portfolio [closed]

I need to enter a USDCHF position and the size is 1000. However I want to replicate the same portfolio pnl by using USDEUR and EURCHF. I know that due to triangular arbitrage USDCHF=USDEUR*EURCHF as ...
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64 views

Performance Call on a Futures

I'm not a 100% on when a margin call is on a group of future contracts... The contract attributes were: ...
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3answers
194 views

Options Delta Meaning of Term [closed]

not able to understand delta in options. Whilst I understand, it is how much the option moves when the underlying moves by 1 unit, I fail to understand, when someone books a currency option, why does ...
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1answer
49 views

How to optimize a series of equations whose outputs are a variable of the subsequent equatinos

The basic question is, given $f(x) = y$ and $f(y) = z$, how can you find $x$ such that $z$ is at its maximum? I can optimize each equation independently, but I do not know how to optimize when ...
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58 views

How can we value NPV for a standard FX Swap?

hope you are all well! Was just wondering how we can value the NPV on the value date for a FX swap - i'm sure it's by evaluating the interest rate payable/receivable from the trade date until the ...
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1answer
214 views

LSV model calibration with only few quotes per maturity

At this link I have asked what is the market standard when pricing options in different asset classes. Based on the answers, the standard for FX and equities seems to be the local-stochastic ...
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1answer
101 views

What is the intuitive explanation for the spot risk in an FX swap?

I am familiar with FX swap and the basis/IR risk they carry. However, know that they have a very small spot risk component which arises from the present value of future cash flows different from the ...
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1answer
75 views

Pricing an fx option in the same currency

Let imagine we have an option from EUR to USD priced in EUR, therefore the payoff for a call is: $$\frac{(S - K)^{+}}{S} = K (1/K - 1/S)^{+}$$ This is basically the payoff of a price of a put on 1/S ...
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268 views

Using QuantLib Python to value FX options using stochastic volatility

I would like to use QuantLib (and in particular the python wrapper) to value FX option using the Heston model. Thanks to http://gouthamanbalaraman.com and all of the articles therein : in particular ...
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30 views

Granger Causality Equation between daily Carry Trade returns and daily Stock Market returns [closed]

Could someone please kindly help me in regards to a question on the Carry Trade. What is the most widely used equation for the carry trade including the funding and investment currency and what ...
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1answer
78 views

Volatility surface tenors

I don't think this has been asked before, but are the tenors on a volatility surface out of spot date for the currency pair or out of value T+0?
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2answers
80 views

Group name for currencies, equities and other financial products

I am working on a financial software system that deals with crypto currencies. This system has a model called 'Currency' that describes for example 'BTC' and market for which there is a 'base' and '...
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3answers
167 views

Risk-neutral density from spot prices?

I am currently working on a university project and I hope someone can help me out with a rather silly question :-) I want to analyse the change in the shape of risk-neutral density functions of spot ...
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0answers
46 views

Do Reuters or Eikon have intraday exchange rate data for minor currencies?

I need historical intraday exchange rate data (for a minor european currency - EURRSD) for my thesis. Not necessarily tick by tick - just prices at any interval below an hour will work. I guess there ...
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0answers
43 views

FX Average Forward Pricing

Lookin for documentation on how to price FX Arithmetic Average Rate Forwards. Couldn't find any info on textbooks. Any help is very appreciated.
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2answers
86 views

how to trade interest rates outside G10

G10 currencies markets have active FRA markets and apart from NOK, SEK and NZD one can also speculate on interest rates through exchange-traded futures. What's the best liquid way to speculate on ...
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2answers
114 views

Why isn't a quanto adjustment needed in this case?

Suppose we have a contract with payoff $P_Y$ in currency $Y$, where $P_Y$ on a variable in currency $Y$. To calculate the value in $X$, we take the expected payout under $Y$-numeraire $E_Y(P_Y)$, ...
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4answers
114 views

Sending order to Forex or Stocks from Python strategy

I have my own strategy developed in Python. But I couldn't find a reliable method to send, close, and modify orders using Python. Are there any tools that help order management using Python? I also ...
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1answer
103 views

What is the instantaneous FX rate and used for a FX Forward?

Could someone please explain me what the instantaneous FX rate corresponds to and why it is used in the valuation of an FX Forward trade? It is defined as: FX_Instantaneous= FX_Spot-(ON+TN) where ...
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1answer
610 views

Pricing Uneven FX Swaps

I'm trying to figure out how to price uneven FX swaps. I just started on a FX trading desk and have been told that the all-in rate for a 2-legged FX swap is equal to: 1) Quote for market side of net ...
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0answers
22 views

Average monthly exchange rates causes translation error in consolidated books

I newly work for a multinational company with a corporate structure such that during consolidation, the books need to be translated multiple times and sometimes back to the original currency. I've ...
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1answer
2k views

Spot/Next and Tom/Next FX forward swaps

could somebody please tell me what is the main difference between Spot/Next and Tom/Next FX forward swaps? I know that both are used to roll spot FX position settlement to 1 day forward but I really ...
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2answers
83 views

How can currency (USD/TRY) be going up without having a candle before that would close under it?

I am having a hard time understanding how can USD/TRY be going up without having a period before that would close at a point under it. This is from today (2018-10-08 6:12 and 6:50). Is it moving up ...
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1answer
100 views

Is forex trade set up where profit target is twice as far from stop loss is good strategy? [closed]

I was listening to this youtube video and the author is explaining that good way is to set up forex trades in a way where 10 pips in 'losing' direction (Stop loss) and 20 pips in 'winning' direction (...
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1answer
127 views

How is FX cross rates options are priced?

Say I have market for EUR/USD and also USD/CAD, how would EUR/CAD would be priced and hedged in practice? What are good papers/book chapters to read on that? (Assuming basic knowledge already on ...
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1answer
89 views

When to Choose FX Swap or Forward

Assume we have an exporter who is looking to hedge their USD exposure. How would they decide between choosing a FX swap or a FX forward contract to do so? I understand that a swap has 2 exchanges, ...
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1answer
317 views

Implied AUD Interest Rate from USDAUD FX Swap and USD Interest Rate

Can someone help me understand how to derive the implied interest rate or spot rate in BBG FXFA? I actually get why the Forward rate, F_Ask and F_Bid are derived using the formula in the picture. ...
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1answer
42 views

Which interest rates (maturity length) should one use for calculating interest rate differential of AUDUSD?

An interest rate differential is a difference in interest rate between two currencies in a pair. It is not clear from the internet articles such as the one below which maturity length should be used ...
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1answer
116 views

ATMF FX straddle delta

I am trying to price an ATMF FX (say Usdidr) straddle - the fxdelta for call and put leg are quite different with put fxdelta being higher than call delta. (Absolute values) Why would this be the case?...
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3answers
333 views

Industry standard for interpolating FX volatilities

I'm looking to replace the FX vol interpolation scheme at my firm, and was wondering what the industry standard was. We used to do vanna-volga, but it only takes 3 points (25dp, atm, 25dc), and so ...
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1answer
282 views

What is the formula for calculating fair value of currency futures?

Let's use AUDUSD 6A futures contract as an example. How does the interest rate between AUD and USD give rise to the fair value calculation of AUDUSD 6A futures contract? Besides interest rates, are ...
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0answers
34 views

forex backtesting spread cost modeling

For professional level forex trading, what is a reasonable estimate of roundtrip transaction costs (I am talking about major pairs, like EUR/USD).
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193 views

Quanto Factor - FX Forward

In the paper Quanto Options by Uwe Wystup the "quanto factor" $Q$ is used to describe forwards/options when quanto-ed into a different currency, e.g. $$\text{Quanto Forward Value} = Q \cdot e^{-r_Q T}...
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98 views

Log Differences vs Percentage returns [closed]

When working with a single TimeSeries of Foreign Exchange price data (EUR/USD : OHLC) on a minute by minute level, is it better to use the % difference of the close vs the lognormal difference of the ...
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1answer
97 views

Why is spot FX standard if overnight forwards are available?

A spot FX transaction means agreeing to an FX rate to settle on a T+2 basis. Though there are transactions that deliver/settle overnight/T+1. Why is spot, therefore, the standard benchmark trade, and ...
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1answer
177 views

Choosing the Correct Periods for Yang-Zhang Volatility

I am implementing the formula for YZ Volatility using this link. I am testing it on hourly Forex charts and I'm getting some strange numbers. Taking the 14 day YZ volatility using ...