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…
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…
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…
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…
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…
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…
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…
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…
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. …
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…