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 61–70 of 100
  1. 061A bank at its Rs 500 crore limit to one borrower can buy five-year CDS protection on Rs 100 crore at 220 bp and lend Rs 100 crore more at a margin of 280 bp. What does the trade earn, and which risks does the bank still carry?Credit derivatives and counterparty riskCoreCredit tradingRisk management
  2. 062An exporter will receive USD 3 million in six months; the forward is 84.20. Compare the forward, a zero-cost collar of 82.50 and 85.50, and a seagull that also sells an 80.50 put to lift the cap to 86.50, at final rates of 79.00, 83.00 and 88.00.Currency derivatives and corporate FX hedgingCoreFX derivativesCorporate treasury
  3. 063A broker is short 20 lots, lot 50, of the one-month Satpura 50 22,000 straddle on 14% implied volatility. The exchange revalues the position for index moves of minus 6% to plus 6% combined with volatility up or down 4 points. Which scenario is worst, and what margin does it imply?Margin, clearing and risk limitsCoreClearing and riskIndian derivatives desks
  4. 064A book has delta of plus 2,000 shares and gamma of minus 500 shares per rupee. Using the stock and one listed option with delta 0.6 and gamma 0.05, how many options and shares make it delta and gamma neutral?Greeks and managing an options bookCoreEquity derivativesMarket making
  5. 065A bank receives fixed 6.60% on a one-week overnight index swap on Rs 500 crore. Overnight fixings are 6.50%, 6.52%, 6.55%, 6.60% and 6.58%, the last applying to Friday, Saturday and Sunday. Compound the floating leg and compute the net settlement.Interest rate derivativesCoreRates derivativesDerivatives operations
  6. 066A fund holds Rs 50 crore of a stock at Rs 600. The one-month future trades at Rs 597, while carry at 7% says it should be about Rs 603.50. How does switching from the shares into cash plus futures earn extra return, and what if the discount has not closed by expiry?Forwards, futures and arbitrageCoreAsset managementIndian derivatives desks
  7. 067An index options book has delta of plus 800 index units, gamma of minus 1.3 units per point and vega of minus Rs 3 lakh per vol point, with the index at 22,000. Build the P&L grid for index moves of minus 2%, 0 and plus 2% and volatility moves of minus 2, 0 and plus 2 points.Greeks and managing an options bookHardRisk managementEquity derivatives
  8. 068A desk holds 400 lots, lot 50, of index calls with delta 0.45, gamma 0.0002 per point and vega Rs 12 per vol point per unit, index at 22,000. Express delta in index units and rupees, gamma as the change in rupee delta for a 1% move, and vega in rupees per vol point.Greeks and managing an options bookWarm upRisk managementIndian derivatives desks
  9. 069An exporter has sold USD 20 million forward at an average of 83.10. Forwards for the same dates are now 85.00, and the board sees a mark-to-market loss. Compute it, and explain why it is not the whole story.Currency derivatives and corporate FX hedgingWarm upCorporate treasuryFX derivatives
  10. 070A stock joins the Satpura 50 and index funds must buy about Rs 900 crore at the close on the effective date, against average daily trading of Rs 150 crore. A facilitation desk can pre-position or offer the funds a guaranteed close. Size the liquidity problem and the desk's risk, and say what happens if the stock falls 4% after inclusion.Market making and trading scenariosHardMizuhoHong Kong · 2024MizuhoHong Kong · 2024MizuhoHong Kong · 2024

Company names and figures are illustrative.