4 votes
Accepted

Structured product sellers and div swaps

The paper is generally correct, but it is not a general statement, as in a general truth of options hedging in a theoretical context, rather a statement regarding how the structured derivs market is ...
  • 1,346
3 votes
Accepted

S. Bossu's Correlation Swaps Model

What you seem to be missing is $$\sum_{i,j} w_i w_j \sigma_i \sigma_j = \left(\sum_i w_i\sigma_i\right)^2$$ Now apply Jensen's inequality to get $$\left(\sum_i w_i\sigma_i\right)^2 \leq \sum_i w_i\...
3 votes

How to hedge x gamma in callable prdc?

You generally can’t. There aren’t enough suppliers. Therefore you end up living with it , which means that the correlation between US swap rates and USDJPY Fx can get very high since many dealers ...
  • 14.3k
3 votes
Accepted

Once the client buys a structured product, what does the trader do?

If a structured product trader can directly hedge in the market, he will usually do it. Here your example is a little too simplified, many structured products have features that cannot be easily ...
  • 2,878
3 votes

Why do some principal-protected notes reset the gains to zero?

The payoff: you are missing one point. It's not only about the upside, it's also about the downside. Your performance $P_T$ at maturity $T$ (the Final Valuation Date) is basically: $$P_T=P_0\left(1+1_{...
3 votes

Structured product sellers and div swaps

To add to the above on a more practical note: In general, SP desks make money on the individual product when the underlying declines. Dividends make the underlying decline, hence they are naturally ...
  • 151
3 votes

What is "Call a Deal" in structured finance space?

Call means SPV manager can sell liquidate all the assets with a price agreed with 3rd party or originator. Then use the proceeds ...
2 votes
Accepted

Does a barrier breach in a geared put structured note result in greater losses for the investor vs a plain knock in barrier?

My understanding of a "geared put structure" is that it is a bought ATM put option on a stock, whereby the ATM put-option buyer sells (at the same time) some OTM puts. The number of OTM puts ...
  • 5,386
2 votes

What book(s) would you recommend for structuring and pricing Exotic Products?

Exotic Options and Hybrids: A Guide to Structuring, Pricing and Trading, Wiley, 2010. https://www.amazon.co.uk/dp/B003F8S7B8/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1 was quite interesting, and ...
  • 521
1 vote

Can you predict MTM gain or losses on future contract?

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.
1 vote
Accepted

What's the difference between a normal Autocall and a Phoenix Autocall?

For "Classic Autocall" or "Athena", the coupons are indeed accumulated and paid on the event of autocall, either pre-maturity or at maturity (but for the later it will not be ...
1 vote

What book(s) would you recommend for structuring and pricing Exotic Products?

"Applied Quantitative Finance for Equity Derivatives" by Jherek Healy might be of interest to you though it's not focused specifically on exotics. The sellside (especially French banks) ...
  • 2,121
1 vote

What book(s) would you recommend for structuring and pricing Exotic Products?

Since other answers already mentioned Das vol 1 and vol 2 ; and Bouzoubaa and Osseiran, I would like to add the good old: Harry Kat. Structured Equity Derivatives: The Definitive Guide to Exotic ...
1 vote

What book(s) would you recommend for structuring and pricing Exotic Products?

Satyajit Das Structured Products Volume 1: Exotic Options; Interest Rates and Currency (The Das Swaps and Financial Derivatives Library) to volume 3
  • 2,825
1 vote

Once the client buys a structured product, what does the trader do?

In the simplest case, he books the structured product as a sale of the call at 5, he then enters the market and buys a call at 3, so he pockets 2 on the trade.
  • 14.3k
1 vote

Should the targeted rate of return stay the same regardless of the currency?

Point of clarification : are you asking about required returns in pounds sterling for projects conducted in the UK? If so, you also need to adjust for any difference in risk free interest rates ...
  • 14.3k
1 vote

Should the targeted rate of return stay the same regardless of the currency?

It depends. Is the project being carried in the original place or moving to the UK? If the project keeps being in the original place (i.e. euro zone) and you want the IRR in GBP, then you need ...
  • 6,923
1 vote

Structured product sellers and div swaps

Just to add a remark on top of Ivan’s excellent answer, note that the core reason IB package those KI puts in the autocallables and other SP for investors is not just in order to make the coupons more ...
  • 2,137
1 vote

FX: PRDC (Power Reverse Dual-Currency Notes): key risks and callability

In your example, the buyer of the PRDC security is a Yen-based investor who gets long the BRL on a forward basis, on each coupon date and on the final maturity date. Because BRL is a lot cheaper ...
  • 14.3k
1 vote

Total market size of structured products

I am not aware of global figures. But for the European market for structured products, you can have a look at www.eusipa.org. They aggregate the national figures, including the German ones that you ...

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