Foreign Exchange Swaps – part 3
The FX basis The question we seek to address in this blog is which interest rates should you use to calculate the forward rate? Different banks will use different rates which will reflect their credit…
Foreign Exchange Swaps – part 2
Introduction In the first post we reviewed the theoretical methods used to calculate a forward FX rate. This was some background to the FX swap product https://www.fmarketstraining.com/foreign-exchange-swaps-part-1/ Having established the theory lets look at how…
Published by Fmarketuser
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…
Published by Fmarketuser
Total return swaps
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…
Published by Fmarketuser
Caps and floors in a risk free rate (RFR) world
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…
Published by Fmarketuser
Understanding theta
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…
Published by Fmarketuser
Understanding gamma – part 4
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…
Published by Fmarketuser
Understanding gamma – part 3
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…
Published by Fmarketuser
Understanding gamma – part 2
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…
Published by Fmarketuser
Understanding gamma – part 1
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. …
Published by Fmarketuser