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by prodiptag
January 4th, 2011, 6:35 am
Forum: Trading Forum
Topic: What is an axe?
Replies: 11
Views: 33134

What is an axe?

usually means, a special interest from the trader to do that trade, mnostly to cover existing risk positions (most likely) - and corollary -> he is ready to quote very tight/ pay bigger part of the pnl to sales etc. So "I have an axe to do A" means "I am very interested to do A"
by prodiptag
January 4th, 2011, 6:04 am
Forum: Technical Forum
Topic: Interest Rate Options - Early exercise
Replies: 6
Views: 22777

Interest Rate Options - Early exercise

This is a very interesting question and I do not have any clue, would love to know what others think. At the risks of hijacking the question, let's assume we are talking about STIR futures options on euronext?
by prodiptag
January 4th, 2011, 5:51 am
Forum: Technical Forum
Topic: Option on Volatility Target Index.
Replies: 7
Views: 24572

Option on Volatility Target Index.

<t>I am usually a bit sceptical about this vol targetting indices, but that's just personal. so are you trying to price an option on this index (I_t) or just the forwards? what's the underlying? how the instrinsic forwards look like for a fixed weights? - like a steep one (costly) or a flat one (che...
by prodiptag
January 4th, 2011, 5:39 am
Forum: Technical Forum
Topic: Bartlett hedging under SABR model confusion
Replies: 6
Views: 24466

Bartlett hedging under SABR model confusion

<t>I never heard of this paper before, and now that I look in to it, am doubtful of its utility!!this paper appears to treat alpha as the initial value in the beginning and then somewhat lost it later. You should look at the original paper by Hagan et al instead. and infact the delta hedge proposed ...
by prodiptag
December 29th, 2010, 6:24 pm
Forum: General Forum
Topic: CMS replication
Replies: 16
Views: 29009

CMS replication

<t>not sure exactly what your question is, nevertheless, you can take a cms caplet at K to be a portfolio of payers with most of notionals concentrated at K, and a CMS cap as a bunch of these. From then on you can apply your understanding of BS to figure out the gamma exposure - like , all things eq...
by prodiptag
December 28th, 2010, 4:50 am
Forum: General Forum
Topic: CMS replication
Replies: 16
Views: 29009

CMS replication

yes, long floor at strike K -> long rcvr at K + short rcvrs at strikes below.
by prodiptag
December 25th, 2010, 6:32 am
Forum: General Forum
Topic: CMS replication
Replies: 16
Views: 29009

CMS replication

<t>yes, you are long the cap, short the floor -> that means long payers at higher strikes and also long receivers at lower strikes. You can revisit the replications papers you have seen, to convince yourself. else intuitively, on the cap side when swap rates goes up, dv01 goes down, so you BUY swapt...
by prodiptag
December 24th, 2010, 9:42 am
Forum: Technical Forum
Topic: Hedging CDS in foreign currency
Replies: 9
Views: 25568

Hedging CDS in foreign currency

<t>am not a credit guy, but i guess the easiest way to manufacture a dom ccy cds from a non-local ccy one is to do this -> on day1, buy the cds snd put on ur fx hedge spnning different points in time, notional at each points based on the defualt probs etc. then onwards dynamically rebalance (based o...
by prodiptag
December 24th, 2010, 8:26 am
Forum: Technical Forum
Topic: Hedging CDS in foreign currency
Replies: 9
Views: 25568

Hedging CDS in foreign currency

<t>why do you think xccy is inefficient, I think that is the only way to manufacture an domestic CDS from a foreign CDS (yes, dynamic rebalance required, with the associated costs). on day one you buy the foreqign cds and set up a series of fx fwds accross time points spanning the issue period. ther...
by prodiptag
December 24th, 2010, 5:02 am
Forum: General Forum
Topic: CMS replication
Replies: 16
Views: 29009

CMS replication

sorry, my typo misled you, it is NOT "swaptions collars" but "swaptions strangles" (see my 1st post). so not much skew exposure, but reasonably high vol of vol exposure ("convexity" exposure in other words)
by prodiptag
December 23rd, 2010, 6:17 pm
Forum: General Forum
Topic: inflation swap acc convension
Replies: 2
Views: 22649

inflation swap acc convension

it does
by prodiptag
December 23rd, 2010, 7:32 am
Forum: Student Forum
Topic: Skew and Kurtosis in Vanilla Option
Replies: 7
Views: 23755

Skew and Kurtosis in Vanilla Option

<t>QuoteOriginally posted by: AlanQuoteOriginally posted by: jimslimshadyThanks both.By the way, my understanding is that skew and kurtosis explain the vol-smile / smirk. Is there any paper out there which prove this relationship?Well, the Breeden-Litzenberger paper/formula is a proof that if the sm...
by prodiptag
December 23rd, 2010, 6:36 am
Forum: General Forum
Topic: CMS replication
Replies: 16
Views: 29009

CMS replication

<t>take an example of a n year swap of CMS10y against a fixed rate, say K. now pick out a single swaplet, say the 5th year payout -> this can be decomposed in to a caplet and a floorlet on CMS10y, both struck at K. Assuming you are familiar with cms caps and floors replications, you can figure out t...
by prodiptag
December 22nd, 2010, 10:38 am
Forum: Trading Forum
Topic: vega in term of gamma
Replies: 1
Views: 24496

vega in term of gamma

<t>perhaps nothing much: in a black-schole world the pnl due to difference in price vol and realized vol can be expressed as gamma profits integrated over the option maturity at realized vol minus the same at price vol (see the paper "which free lunch would you like today, sir?: delta hedging, volat...
by prodiptag
December 22nd, 2010, 10:25 am
Forum: General Forum
Topic: CMS replication
Replies: 16
Views: 29009

CMS replication

If you already know cms cap and floor replication, swap should be relatively straight forward - simply use the put call parity. the swap thus manufactured using a caps and floors will give you the instruments you need to hedge (mainly fwd swaps plus series of swaptions strangles)
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