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 41–50 of 100
  1. 041Kalyangad Capital runs a delta-neutral short Satpura 50 options book with gamma of minus 2 units per point and vega of minus Rs 5 lakh per vol point, index at 22,000. Stress it for a 10% gap down with volatility up 10 points. Why does the Greek estimate understate the loss?Margin, clearing and risk limitsHardRisk managementClearing and risk
  2. 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
  3. 043Dayara Pharma trades at Rs 540 on a pending approval: Rs 660 if approved, Rs 420 if not, equally likely, with ordinary 25% volatility either way over a month. Price the one-month 600 call as a mixture of the two outcomes, compare it with a single-volatility price, and say what shape the event gives implied volatility across strikes.Option pricing and arbitrage checksHardVolatility tradingEquity derivatives
  4. 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
  5. 045Tadoba Tractors is at Rs 500. A client sells the one-month 480 put at 15 and buys the 450 put at 6. What are the maximum profit, maximum loss and breakeven, and how does the position compare with owning the stock?Option strategies and trade ideasWarm upEquity derivativesIndian broking
  6. 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
  7. 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
  8. 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
  9. 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
  10. 050Saramati Cement trades at Rs 800 and its three-month futures at Rs 820, lot size 500. The rate is 7% continuous and no dividend is due. What is fair value, are the futures rich or cheap, and what does the cash-and-carry lock in per lot?Forwards, futures and arbitrageWarm upEquity derivativesIndian derivatives desks

Company names and figures are illustrative.