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 100
  1. 011A client signs a one-year accumulator: buy 1,000 shares a day at Rs 900 on a Rs 1,000 stock, the deal ends if it closes above 1,050, and the client buys 2,000 a day below 900. Work three price paths.Structured products and client solutionsHardStructured productsPrivate banking
  2. 012A book has vega of Rs 62 lakh against a Rs 50 lakh limit and gamma of minus 3.5 against minus 3.0. With a one-month and a three-month option to trade, find a combination that brings both inside and explain the trade-off.Margin, clearing and risk limitsHardRisk managementEquity derivatives
  3. 013A client with Rs 5 lakh sells two lots of out-of-the-money index calls at Rs 1.4 lakh margin a lot. A volatility spike and a rally raise margin to Rs 3.1 lakh a lot and the calls lose Rs 60,000. What happens, and what are the client's choices?Margin, clearing and risk limitsCoreIndian brokingRisk management
  4. 014USD/INR spot is 83.00, one-year rupee rates 7% and dollar rates 5%, and the one-year forward is quoted at 85.50. Is that consistent with covered interest parity, and if not, build the arbitrage for USD 10 million.Currency derivatives and corporate FX hedgingCoreFX derivativesRates derivatives
  5. 015A fund bought Rs 25 crore of CDS protection at 200 bp running. The reference company defaults 40 days after the last coupon date and the auction sets recovery at 35%. What does the seller pay, and what accrued premium does the buyer owe?Credit derivatives and counterparty riskWarm upCredit tradingDerivatives operations
  6. 016Build a DV01-neutral two-year versus ten-year swap steepener with Rs 100 crore of ten-year, given DV01s of Rs 190 and Rs 700 per crore. Size the two-year leg and find the P&L if two-year rates fall 20 bp and ten-year rates rise 5 bp.Interest rate derivativesCoreRates derivativesMacro trading
  7. 017A sugar mill sells futures at Rs 38,000 a tonne to hedge a sale in four months. At delivery spot is Rs 35,500 and the future Rs 36,300. What price does it effectively get, and what if the basis had widened to minus Rs 1,500 with the future unchanged?Hedging with futuresWarm upCommodities tradingCorporate treasury
  8. 018A spice exporter receives USD 4 million and EUR 1.5 million in each of the next three quarters and calls after a sharp rupee fall. Build a 75%, 50%, 25% layered hedge with the given forwards, show the rupees locked, and say what you would and would not say about the rupee.Currency derivatives and corporate FX hedgingHardFX derivativesSell-side sales and trading
  9. 019A company's CDS trades at 450 bp with a 40% recovery assumption, and one-year puts struck at Rs 80 on its Rs 200 stock cost Rs 6. For one year of protection against default, which is cheaper: CDS or deep out-of-the-money puts?Credit derivatives and counterparty riskHardCredit tradingHedge funds
  10. 020The index is at 22,000, the one-month future at 22,100 and the two-month future at 22,300, with one month of carry worth 0.47%. Which leg is mispriced, what calendar spread follows, and what can go wrong before expiry?Forwards, futures and arbitrageCoreIndian derivatives desksMarket making

Company names and figures are illustrative.