Derivatives Foundation case studies, worked step by step

Cases
100
Traced to a firm
12
Topics
12
Hard
29
Topic
All topicsMargin, clearing and risk limits8Market making and trading scenarios8Option pricing and arbitrage checks8Option strategies and trade ideas10Hedging with futures8Forwards, futures and arbitrage8Volatility trading8Interest rate derivatives9Structured products and client solutions7Currency derivatives and corporate FX hedging9Credit derivatives and counterparty risk7Greeks and managing an options book10
Level
AnyWarm upCoreHard
Source
AnyReported at a firmStandard
Showing 11–20 of 47 · filtered from 100Clear filters
  1. 023An exporter sold USD 2 million forward at 83.60 for this week, but the buyer will pay a month late. Spot is 84.40 and one-month forward points are plus 0.25. Cancel and rebook: what is the cash flow today, and what effective rate is achieved?Currency derivatives and corporate FX hedgingCoreFX derivativesDerivatives operations
  2. 029A clearing member defaults and closing out its book loses Rs 70 crore. Its initial margin is Rs 40 crore and its default fund contribution Rs 10 crore; the clearing corporation holds Rs 5 crore of its own capital in the waterfall and the other members' default fund is Rs 100 crore. Who bears what?Margin, clearing and risk limitsCoreClearing and riskDerivatives operations
  3. 030A fund buys five-year protection on Rs 50 crore of Jharsa Minerals bonds. The market spread is 350 bp, the standard running coupon 100 bp and the risky annuity 4.2. What is paid upfront, what is paid each quarter, and who pays whom?Credit derivatives and counterparty riskCoreCredit tradingSell-side sales and trading
  4. 031A desk with a Rs 5 crore one-day VaR limit sits at Rs 4.6 crore, and a client trade would take it to Rs 5.6 crore. It can reject the trade, hedge with index futures to cut VaR by Rs 0.8 crore for Rs 3 lakh, or ask for a temporary limit. What do you do?Margin, clearing and risk limitsCoreRisk managementSell-side sales and trading
  5. 032A client is offered a one-year Rs 10 lakh note on Garudmachi Pharma at Rs 800 paying a 12% coupon, with principal returned in shares at Rs 800 if the stock finishes below that. What is the client really holding, and what does it get at 900, 760 and 560?Structured products and client solutionsCoreStructured productsWealth management
  6. 033A fund with no spare cash wants exposure to Purandar Motors at Rs 700. The three-month 700 call is 42 and the 700 put 30, rates are 7%, and the future trades at 712. Build a synthetic long, compare it with the future, and say whether anything is mispriced.Option strategies and trade ideasCoreAsset managementEquity derivatives
  7. 034A long volatility book made Rs 12 lakh yesterday. At the open it had delta of plus 2,000, gamma of 150 per point, vega of Rs 3 lakh per point and theta of minus Rs 4 lakh a day. The index rose 60 points and implied volatility 1.5 points. Explain the P&L and size what is unexplained.Volatility tradingCoreRisk managementVolatility trading
  8. 035Kolahoi Pharma is at Rs 1,500 and pays a Rs 30 dividend in two months. The six-month future trades at Rs 1,510 with rates at 6.5% continuous. What is fair value, which way does the arbitrage run, and what does the trade need that is not always there?Forwards, futures and arbitrageCoreEquity derivativesMarket making
  9. 042Agasthya Capital buys a variance swap with vega notional of Rs 10 lakh at a strike of 20. What is the variance notional, what is the P&L if realised volatility is 24, and if it is 16? Why is the payoff not symmetric?Volatility tradingCoreVolatility tradingExotics trading
  10. 044Vairatgad Market Makers quotes one-month options on Chandoli Paper. An at-the-money option has vega of Rs 1.2 per vol point per share, fair volatility is uncertain by about 0.8 points, and hedging costs about Rs 0.10 a share. What is a minimum sensible bid-offer width, and what would make you widen it?Market making and trading scenariosCoreMarket makingVolatility trading

Company names and figures are illustrative.