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 1–7 of 7 · filtered from 100Clear filters
  1. 015A fund bought Rs 25 crore of CDS protection at 200 bp running. The reference company defaults 40 days after the last coupon date and the auction sets recovery at 35%. What does the seller pay, and what accrued premium does the buyer owe?Credit derivatives and counterparty riskWarm upCredit tradingDerivatives operations
  2. 019A company's CDS trades at 450 bp with a 40% recovery assumption, and one-year puts struck at Rs 80 on its Rs 200 stock cost Rs 6. For one year of protection against default, which is cheaper: CDS or deep out-of-the-money puts?Credit derivatives and counterparty riskHardCredit tradingHedge funds
  3. 030A fund buys five-year protection on Rs 50 crore of Jharsa Minerals bonds. The market spread is 350 bp, the standard running coupon 100 bp and the risky annuity 4.2. What is paid upfront, what is paid each quarter, and who pays whom?Credit derivatives and counterparty riskCoreCredit tradingSell-side sales and trading
  4. 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
  5. 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
  6. 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
  7. 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

Company names and figures are illustrative.