## Foreign Exchange swaps – part 1

I always say that the three most difficult topics in finance to teach are index tranche investing (don’t ask), bond futures and FX swaps. There is a wonderful adage that comes from the UBS training…

I always say that the three most difficult topics in finance to teach are index tranche investing (don’t ask), bond futures and FX swaps. There is a wonderful adage that comes from the UBS training…

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Defintions A total rate of return swap is a fixed for floating swap in which cash flows are exchanged but the floating rate on one side is based on the total rate of rate of…

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Definition An interest rate cap is an option structure whereby the buyer is protected against rates rising above a pre-agreed level – the option’s strike. A floor gives the buyer protection against rates falling below…

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Introduction In some previous posts I had explained the concept of delta and gamma within an option trading context. One of the strategies we analyzed was a delta-hedged short call position. This position has characteristics…

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This is the fourth post in a series looking at elements of option trading and option risk management. In the earlier posts (part 1, part 2, part 3) on this subject we defined gamma as…

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In the previous posts we had looked at a delta hedged short call position, which we argued was a way of expressing a view on ‘large’ movements in spot and changes in implied volatility. Here…

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Gamma is defined as the rate of change of delta with respect to a given change in the underlying price. In the last post we looked at delta hedging a short call position and looked…

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Introduction Over the last few posts we have spent a fair amount of time looking at delta as a measure of directional price risk. Arguably, the more difficult concept to grasp is that of gamma. …

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In the previous post we looked at the payoff that combined a short call position with a delta hedge such that the trader was immune from small changes in the underlying price. This is shown…

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In the previous post we had sold 100 ATM call options on Tesla and hedged the delta exposure by purchasing 56 shares. Using a simple example, we illustrated that the position was immune from small…

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