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 21–29 of 29 · filtered from 100Clear filters
  1. 074A stock at Rs 1,200 reports results tomorrow, and the at-the-money straddle expiring in a week costs Rs 84. Its last eight results-day moves were 5%, 3%, 9%, 4%, 6%, 2%, 7% and 4%. Buy the straddle, sell it, or sell an iron fly with wings at 1,100 and 1,300 for Rs 60?Option strategies and trade ideasHardVolatility tradingEquity derivatives
  2. 079Build a two-step binomial tree for a stock at 500 with up 1.1, down 0.9 and 2% a step, and price a 520 put as European and as American. Where is early exercise optimal?Option pricing and arbitrage checksHardModel validation
  3. 080A stock halts at 300 on a takeover rumour with a bid of 360 in the air. You are short 500 lots of one-month 320 calls. How do you quote at the reopen, and what do you stand to lose or make?Market making and trading scenariosHardOld Mission CapitalChicago · 2020
  4. 087A stock reports results in five trading days. The one-week option trades at 60% implied volatility against 30% on a normal day. What move is priced for results day, and would you sell the one-week straddle or a calendar against the one-month at 38%?Volatility tradingHardVolatility tradingEquity derivatives
  5. 089A bank's five-year swap with a mid-sized client has expected positive exposure of Rs 8, 12, 14, 11 and 5 crore by year. Default probability is 2% a year, loss given default 60%. Compute the CVA and say how collateral would change it.Credit derivatives and counterparty riskHardRisk managementCredit trading
  6. 091A Rs 300 crore portfolio has a beta of 0.9 to the broad index and 0.5 to the bank index in a two-factor regression. Hedge both factors with index futures, and show why hedging only with the broad index leaves a bank bet.Hedging with futuresHardHedge fundsEquity derivatives
  7. 095A three-year autocallable on the index pays principal plus 9% per year elapsed if the index is at or above its start on a yearly observation. If never called, principal comes back unless the index ends below 60% of its start, when the loss is one for one. Work three paths and say what the investor is short.Structured products and client solutionsHardStructured productsExotics trading
  8. 096A fund is short a bond future settling at 98.00 and must choose what to deliver: bond A at 101.20 with conversion factor 1.0300, B at 96.50 with 0.9850, C at 104.80 with 1.0700. Which is cheapest to deliver, and how could that change if yields rise sharply?Forwards, futures and arbitrageHardRates derivativesAsset management
  9. 097A power company borrows USD 100 million for five years at a floating dollar rate plus 1.8% and swaps it into a rupee fixed rate of 8.9%, with principal exchanged at 83.00. Lay out the cash flows, and compare the rupee cost of repaying principal unhedged if the rupee falls to 95.Currency derivatives and corporate FX hedgingHardFX derivativesCorporate treasury

Company names and figures are illustrative.