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 21–30 of 52 · filtered from 100Clear filters
  1. 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
  2. 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
  3. 046Ilvani Software earns USD 50 million a year and spends USD 15 million in dollars. How much of its dollar exposure should it hedge, and how much does a one-rupee move change profit before and after hedging 60% of the net exposure?Currency derivatives and corporate FX hedgingCoreCorporate treasuryFX derivatives
  4. 047Painganga Capital sold a one-month at-the-money straddle on Torna Logistics at 22% implied volatility, vega Rs 2 lakh per vol point, delta hedged daily. Realised volatility was 18%. Estimate the P&L, and describe a path that would have made the trade lose even so.Volatility tradingCoreVolatility tradingHedge funds
  5. 048Nagzira Machine Tools must pay USD 2 million in six months. The six-month forward is 84.40; a six-month dollar call struck at 84.50 costs 0.90 rupee per dollar. Compare the forward and the option if the rate ends at 82.00, 84.50 or 87.00.Currency derivatives and corporate FX hedgingCoreFX derivativesCorporate treasury
  6. 049At 10 am on expiry day, Baitarani Capital is short 200 lots (lot 50) of the Satpura 50 22,000 straddle, sold for 60 points, with the index at 22,000. What is the P&L at settlement if the index ends at 21,900, 22,000 or 22,150, and how does gamma behave through the day?Greeks and managing an options bookCoreIndian derivatives desksRisk management
  7. 053A five-year convertible with Rs 1,000 face converts into 8 shares. The stock is Rs 110, the straight bond is worth Rs 880 and a five-year call struck at Rs 125 is worth Rs 25. Value the convertible and its conversion premium.Option pricing and arbitrage checksCoreEquity derivativesCredit trading
  8. 058A company with a Rs 300 crore floating loan at benchmark plus 1.5% buys a three-year 8% cap for 0.9% upfront. What does it pay each year if the benchmark runs at 7%, 9% or 10%?Interest rate derivativesCoreCorporate treasuryRates derivatives
  9. 059Five counterparties with exposures of Rs 40, 25, 60, 15 and 30 crore, default probabilities of 0.5%, 2%, 0.8%, 6% and 1.5%, and 60% loss given default except the fifth at 45%. Compute and rank expected loss, and say which limit you would cut first.Credit derivatives and counterparty riskCoreRisk managementCredit trading
  10. 060An Indian wire maker will buy 500 tonnes of copper in three months, priced in dollars. It hedges copper at USD 9,000 and dollars at 83.80. At delivery copper is 9,600 and USD/INR 85.10. Work the rupee cost hedged and unhedged, and split the difference.Hedging with futuresCoreCommodities tradingFX derivatives

Company names and figures are illustrative.