Browse By

Category Archives: Derivatives

TARF PricingPicture6

Excel convergence hacks for TARF pricing models

Excel convergence hacks for TARF pricing models. Convergence between closed form and simulation model prices is enhanced with variance reduction procedures. It encourages model extension to complex products. For our TARF pricing model in its original form convergence is a challenge. We will try and

Comparing-Participating-forward-payoff-options

The case for participating forwards

The case for participating forwards This week we took a deep look at a number of common structured products and their hedge effectiveness. One product stood out in terms of its performance – the unconventional participating forward contract. Traditionally when we look at hedging structures

Simple-CallPut-1

FX Currency Options – The USD JPY FX options convention

USD JPY FX options convention. For business school students taking the treasury product exam or preparing for a trading desk interview, the USD JPY pair is particularly troublesome. Here is a list of common errors and challenges side by side with four simple examples for

TARF-Forward-Hedge-Effectiveness-Model-compare

TARF hedge effectiveness model

TARF Hedge effectiveness model. This is our second post in the TARF hedge effectiveness series and in the treasury candidates assessment series case. To catch up with the case please see the original TARF case study that defines the client requirement as well as available

BootStrappingZeroCurve

Bootstrapping the Zero Curve and Forward Rates

Deriving zero rates and forward rates using the bootstrapping process is a standard first step for many valuation, pricing and risk models. Interest rate and cross currency swaps & interest rate options pricing & VaR models, revolving credit facilities & term B loans valuation models,

HedgingVega5

Hedging Vega and Gamma exposure. Lesson Five

Hedging portfolio Vega and Gamma using solver. Lesson Five For our portfolio model we need an objective function that allows us to minimize the cumulative Greek gap across maturity buckets with respect to Vega and Gamma between the short positions and the proposed hedge portfolio.

060314_1809_HedgingHigh4

Option Greeks. Using Solver to hedge Vega Gamma exposure

Option Greeks. Option Hedging using Excel. Since a spot, forward or future position is linear in its pay off it has no second order derivative. Options on the other hand are non-linear (asymmetric payoffs). While we can get away with hedging Delta with a linear

052114_1758_Volatilitys6

Implied and Local Volatility Surfaces in Excel – Final steps

Building Local Volatility Surfaces in Excel – Lesson Five So far in our volatility surface tutorial over the last few days we have covered: Volatility Surface Lesson One – Building Volatility surfaces in Excel. Beginners Guide Volatility Surface Lesson Two – Volatility surface deep out of the money options

Comodo SSL