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 51–60 of 100
  1. 051A covered call overlay that added 2.1% a year in a ten-year backtest lost about 1.5% in its first live year. The backtest filled at mid, the live market was 2 vol points wide, volatility halved and one month rallied 8%. Where did the gap come from?Volatility tradingHardJump TradingChicago · 2018
  2. 052You are short Rs 5 lakh of one-month vega and can only hedge with three-month options. Size the hedge, then show what happens when one-month vol rises 4 points and three-month vol rises 2.Greeks and managing an options bookHardVolatility tradingExotics trading
  3. 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
  4. 054A fund receives Rs 200 crore at 3 pm that it cannot invest in stocks before the close. How does it equitise with index futures at 22,000, lot 50, and what does it save if the index rises 1.5% overnight?Hedging with futuresWarm upAsset managementIndian derivatives desks
  5. 055A client with Rs 10 lakh is bullish on a Rs 2,000 stock, lot 250. Two lots of futures, or ten lots of the one-month 2,100 call at Rs 40? Show the outcomes at 1,900, 2,050 and 2,300.Option strategies and trade ideasWarm upIndian brokingWealth management
  6. 056A one-year note pays twice the stock's rise up to 15%, so at most 30%, and loses one for one if the stock falls. Tabulate it against owning the stock for moves of minus 20%, 0, plus 10%, plus 15% and plus 40%.Structured products and client solutionsWarm upStructured productsWealth management
  7. 057A client places USD 1 million for one month in a dual currency deposit paying 7% instead of 4.5%, spot 84.00, and the bank may repay in rupees at 84.50. Decompose it, price the extra yield, and show the client's position at 83.00 and 86.00.Structured products and client solutionsHardStructured productsPrivate banking
  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.