Questions tagged [derivatives]
A financial contract whose payoff is linked to the evolution of an underlying security.
622 questions
0 votes
1 answer
89 views
Practically pricing index futures using cost to carry
I am trying to compute a rough approximation for the theoretical price of a Nikkei 225 index future with a far-away expiry. I don't need much accuracy, just a very rough but reasonable upper and lower ...
2 votes
1 answer
226 views
Modelling energy derivatives from a purist perspective
I continue to attempt wrap my head around the mathematical foundations of modelling in energy trading, but I get stuck, or rather, cannot find any definitive references. From a purist perspective, I ...
- 21
0 votes
1 answer
63 views
NPV function sensitivity to FX rates, when those rates are not in the variables of the function
How do I calculate a sensitivity of NPV function to FX rate to the reporting (base) currency, when that FX rate is not in the variables of the said function? For example, $$f(C_1, C_2, DF_1, DF_2, [...
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0 votes
2 answers
89 views
Why does the forward-price formula compound discrete dividends using cost-of-carry-rate 𝑐 rather than interest rate 𝑟?
In Wikipedia, the formula for the forward price of a tradable underlying that pays discrete dividends is given as: My confusion is this: once a dividend $D_i$is paid at time $t_i$, it becomes cash ...
- 41
0 votes
1 answer
69 views
CDS upfront fee in CDSW
I want to understand how the upfront fee that is paid/received at the start of a CDS is calculated. My understanding is that it should equal the difference between the present values of the two legs ...
- 11
1 vote
1 answer
144 views
Clarification on compounding logic in Chapter 23 of Pricing and Trading Interest Rate Derivatives by Darbyshire
I'm working through Chapter 23 (page 396) of Pricing and Trading Interest Rate Derivatives: A Practical Guide to Swaps by J.H.M. Darbyshire, and I’m having trouble understanding a specific statement ...
- 11
0 votes
1 answer
126 views
Interest rates swap P&L
I heard about different ways of estimating the PnL of an IRS. Say I receive through a 10y swap where fixed is 5%, I hold the position for 1 year time. you pay float and receive fixed so estimate PnL =...
0 votes
0 answers
49 views
Finding an invariant/stationary quantity in prediction markets?
I am looking at trade data for specific outcome of an event on a prediction market (Kalshi, but this could apply to others) and trying to model market microstructure effects such as inferring mid ...
- 291
0 votes
0 answers
79 views
confusion about the covered interest rate parity formula
Example 5.6 Suppose that the 2-year interest rates in Australia and the United States are 3% and 1%, respectively, and the spot exchange rate is 0.7500 USD per AUD. From equation (5.9), the 2-year ...
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2 votes
0 answers
109 views
breaking down different theta costs
Reading through Taleb's Dynamic Hedging, when I came across this part: Theta, Interest Carry, and Self-Financing Strategies Traders eliminate the interest costs of holding the premium to compute the ...
- 73
0 votes
0 answers
70 views
structured bond exercise
I'm struggling to find the value of this structured bond, especially understanding how to construct this payoff with options. My idea was to sum Zero coupon + Coupon Bond + Short put. But doesn't make ...
2 votes
1 answer
231 views
Forward rates and discount factors adjustment under different CSA currencies without direct market quotes
In a multicurve framework for collateralized derivatives pricing, forward rates are derived using discount factors consistent with the CSA (Credit Support Annex) currency using xccy basis spreads for ...
- 21
1 vote
1 answer
109 views
Is there an exchange-traded product with a butterfly-style payoff conditional on staying within barriers?
I’m looking for an exchange-traded product (ETP) that mimics the payoff of a butterfly spread, but with an added path-dependent feature: the payoff only occurs if the underlying stays within a ...
- 11
0 votes
0 answers
90 views
Calculate return on a FX forward
If i want to do a carry trade with a forward and calculate the potential return, is it more correct to look at which one ? S = spot = 7.0 F = 1yr forward = 8.0 i_US = USD 1yr rate = 5% (F/S - 1)*100 ...
2 votes
1 answer
210 views
Why Deep ITM European Put Options have positive vega?
Could you explain, not from the perspective of B-S formula, but from intuition, why Deep ITM European Put Options have positive vega? To take an example, if I have a European put options on a stock, ...
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