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1

In practice, the ETF sponsors have "proxy baskets" that have 30-40 issues they will accept in lieu of a full replicated basket to create or redeem. However, the specific issues in the proxy basket are not publically available and generally only available to "authorized participants" In practice, it is just not reasonable to fully ...


1

A long forward can be decomposed into a long call and a short put. This is also true for forward contracts on interest rates: these can be expressed as a long caplet and a short floorlet. An interest rate swap can be understood as a series of (off-market) interest rate forwards (but with miss-matched cashflows, if i.e. the floating coupons settle ...


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If you could predict the exact MTM of futures contracts them, you could make a lot of money! ;-) However, you could make an aggregate estimate by looking at the historical volatility of the contract.


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You're in luck. There's an excellent book about Brazil markets Marcos C. S. Carreira, Richard J. Brostowicz. Brazilian Derivatives and Securities: Pricing and Risk Management of FX and Interest-Rate Portfolios for Local and Global Markets. Palgrave Macmillan 2016. Also if you can find Credit Suisse Guide to Brazil Local Markets (2014), it may help. To answer ...


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To solve a standard optimal stopping problem (say Markovian, finite horizon), you must calculate certain conditional expectations that arise in the dynamic programming principle algorithm. These conditional expectations can be approximated using Longstaff-Schwartz or the Tsitsiklis-Van Roy approach, among others.


5

This is a slightly deeper question that it appears at first. Depending on your treatment of rates (deterministic vs. stochastic), it can indeed be model-dependent. Let's first think about a forward contract $F_T(t)$ locks you in to a transaction at price $F_T(t)$ on an underlying $S(t)$ at time $T$. The well-known price of this contract at time $t$ is \begin{...


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It depends a little bit what you're trying to do. If you can statically replicate the payoff of a position at $t=0$, then putting on that hedge will insulate you from all risk coming from the contract. Payoff doesn't need to be linear - for example, you can perfectly replicate a call option using a put option and a futures contract If you want to use only ...


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