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 71–80 of 88 · filtered from 100Clear filters
  1. 079Build a two-step binomial tree for a stock at 500 with up 1.1, down 0.9 and 2% a step, and price a 520 put as European and as American. Where is early exercise optimal?Option pricing and arbitrage checksHardModel validation
  2. 082A six-month range accrual on USD/INR pays 8% a year for each day the fix is between 82.00 and 85.00. Ninety of 125 fixing days fall inside. What is the coupon, and what is the client short?Structured products and client solutionsCoreStructured productsFX derivatives
  3. 083The index is at 22,000, the one-month future at 22,120, the rate 6.8%, the dividend yield 1.2% and round-trip costs 0.08%. Is a new cash-futures arbitrage worth putting on, and what return does the basis lock in?Forwards, futures and arbitrageCoreAsset managementIndian derivatives desks
  4. 084A pension trust holds Rs 1,000 crore of government bonds with modified duration 7.2 and wants duration 4.0 for three months. A bond future has a DV01 of Rs 1,850. How many contracts, which side, and what risk remains?Hedging with futuresCoreRates derivativesAsset management
  5. 085An importer with large dollar debts sold your bank USD 50 million one year forward at 84. The rupee falls to 92. What does the client owe, why is that exposure likely to go bad at exactly that moment, and how do you protect the bank?Credit derivatives and counterparty riskCoreRisk managementFX derivatives
  6. 086An adviser compares a three-year note paying 100% of the index's price rise, with no protection, against a plain index fund. The index yields 1.3% a year in dividends. What does the note holder give up, and how do you explain it to the client?Structured products and client solutionsWarm upWealth managementStructured products
  7. 087A stock reports results in five trading days. The one-week option trades at 60% implied volatility against 30% on a normal day. What move is priced for results day, and would you sell the one-week straddle or a calendar against the one-month at 38%?Volatility tradingHardVolatility tradingEquity derivatives
  8. 088A client buys Rs 25 crore notional of three-month 105% calls on a stock at 400. Mid volatility is 28% and the desk charges 1.5 points. Price the charge, set up the hedge, and work the P&L if realised volatility turns out to be 32%.Market making and trading scenariosCoreSell-side sales and tradingEquity derivatives
  9. 089A bank's five-year swap with a mid-sized client has expected positive exposure of Rs 8, 12, 14, 11 and 5 crore by year. Default probability is 2% a year, loss given default 60%. Compute the CVA and say how collateral would change it.Credit derivatives and counterparty riskHardRisk managementCredit trading
  10. 090A fund holds 1,000 lots of six-month at-the-money calls on a stock at 500 when the company announces a surprise special dividend of Rs 25, payable in two months. With delta 0.55, estimate the loss, and explain why put holders gain.Greeks and managing an options bookCoreEquity derivativesHedge funds

Company names and figures are illustrative.