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 31–40 of 100
  1. 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
  2. 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
  3. 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
  4. 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
  5. 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
  6. 036Belvora Textiles will receive USD 5 million in three months. Spot is 83.20 and the three-month forward 83.85. What does selling the dollars forward lock in, and how does it compare with staying open if the rupee ends at 81.00 or 85.00?Currency derivatives and corporate FX hedgingWarm upFX derivativesCorporate treasury
  7. 037Six months ago a fund agreed to buy 10,000 shares of Kabini Cables at Rs 520 in one year. The stock is now Rs 560, six months remain and the rate is 7% continuous. What is the forward worth today, and to whom?Forwards, futures and arbitrageWarm upEquity derivativesDerivatives operations
  8. 038Tikona Credit Fund buys a five-year 9.2% bond of Mahuli Infra at 101 and swaps it to floating with a par asset swap. The five-year swap rate is 7.0% and the annuity factor 4.1. What is the asset swap spread, and what is the fund still exposed to?Interest rate derivativesHardCredit tradingRates derivatives
  9. 039Purna Finance bought a 3x6 FRA at 7.00% on Rs 50 crore. At fixing the three-month rate is 7.60%. How much is settled, when, and who pays whom?Interest rate derivativesWarm upRates derivativesCorporate treasury
  10. 040Pranhita Capital is short a one-month at-the-money call on a Rs 1,000 stock at 25% volatility. Compare the hedging error from rehedging daily and weekly, and the cost at 0.05% of the traded value per rehedge. Which frequency would you choose?Greeks and managing an options bookHardVolatility tradingQuant trading

Company names and figures are illustrative.