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by DocToc
November 14th, 2010, 10:55 am
Forum: General Forum
Topic: Marking a trading book correctly?
Replies: 3
Views: 22714

Marking a trading book correctly?

<t>Hi,Had a quick question:Two immediate consequences of being marked correctly are:(1). Risk - at the beginning of the day where I am marked say on a particular vol surface etc would necessarily play an important part in determining my risks(2). PnL - I would work out my PnL (mark(t+1) - mark(t)) *...
by DocToc
November 11th, 2010, 11:49 am
Forum: General Forum
Topic: Reset Risk
Replies: 2
Views: 28412

Reset Risk

<t>Maybe phrasing this a bit better:Assuming I have a single FRA - when the forward rate sets we would need to do some delta as this FRA becomes a riskless entity (say the period over which it accrues is 6months). The best way to do my delta would be to get into the same FRA again but for maybe liqu...
by DocToc
November 10th, 2010, 11:25 pm
Forum: General Forum
Topic: Reset Risk
Replies: 2
Views: 28412

Reset Risk

<t>Hi,Quick question on reset risk for plain vanilla IRS..I know there are quite a few threads concerning this i.e. using IMM swaps etc.My question is more to understand this risk:Say i have a book of many swaps - the reset risk is primarily the change in delta which I face due to a certain number o...
by DocToc
November 10th, 2010, 10:54 pm
Forum: General Forum
Topic: Basic question on iRS
Replies: 13
Views: 26518

Basic question on iRS

<r>Right ok - thanks.so in that case: PV(Swap) = sum_(i = 1 to n) <S><s>[S - L]</s>*accrual factor * DiscountFactor(i) * Notionalso my "Swap Delta" or whatever the risk to a 1bp change in S (the n year swap rate) is... sum_(i = 1 to n) [1 bp]*accural factor * DiscountFactor(i) *NotionalAgain another...
by DocToc
November 10th, 2010, 7:56 pm
Forum: General Forum
Topic: Basic question on iRS
Replies: 13
Views: 26518

Basic question on iRS

<t>When I say notional exchange I mean:(1). view the swap as a fixed rate bond (so paying principal say 1M) back at the end + short floating rate note (paying 1M) back at the end (here the risk is in the fixed leg)(2). view the swap as a fixed rate bond (no principal back at the end) + short floatin...
by DocToc
November 10th, 2010, 7:50 pm
Forum: General Forum
Topic: Basic question on iRS
Replies: 13
Views: 26518

Basic question on iRS

Hi Dave I agree with your previous answer in cases of notional exchange.As in my point (1) the risk is in the fixed leg BUT if we assume no notional exchange then the riskier leg is suddenly the Floating leg. Have you got a mathematical/intuitive reason for this ?Thanks again
by DocToc
November 10th, 2010, 4:58 pm
Forum: General Forum
Topic: Basic question on iRS
Replies: 13
Views: 26518

Basic question on iRS

<t>On thinking about this a bit more...Doesn't this really depend on how I wish to bucket my risk. Say i construct my discounting curve using (in addition to other instruments) the 5y swap - then i would want to see my risk in the 5y bucket as a result of trading this 5y swap. So constructing my cur...
by DocToc
November 10th, 2010, 3:58 pm
Forum: General Forum
Topic: Basic question on iRS
Replies: 13
Views: 26518

Basic question on iRS

<t>Hi,This is a bit of a basic question relating to interest rate swap valuation (vanillas).Where is the risk in the swap, is it in the fixed leg or the floating leg?(1). If we view the swap as a fixed rate bond and a floating rate bond then the majority of the risk would be in the fixed part of the...
by DocToc
February 8th, 2010, 8:21 pm
Forum: General Forum
Topic: Trading Question
Replies: 0
Views: 30669

Trading Question

<t>Hi I had a quick question about trading Gamma..I can trade the Gamma of Calls, Straddles or Strangles, time Spreads, Puts, basically a wide variety of strategies.. How would I decide which of these strategies is best to trade when I am interested in trading Gamma..Is it to do with choosing the st...
by DocToc
January 26th, 2010, 10:08 pm
Forum: General Forum
Topic: Gamma Trading / Scalping
Replies: 7
Views: 33733

Gamma Trading / Scalping

<t>Yep sorry my bad.Now that I understand that, another question:Have you got any idea why the PnL from dynamically hedging a long call can be written as:I understand this intuitively but am not sure if my intuition is correct. Here goes anyway,Basically the Gamma PnL is what we are making by contin...
by DocToc
January 26th, 2010, 8:36 pm
Forum: General Forum
Topic: Gamma Trading / Scalping
Replies: 7
Views: 33733

Gamma Trading / Scalping

<t>Thanks for your replies,daveangel,I understand that if Implied Vol is lower that we think it ought to be (so we think the underlier is going to realise more than the Implied Vol is suggesting) we generally want to be long vega - hence we would want to purchase options rather than sell. However, a...
by DocToc
January 25th, 2010, 9:44 pm
Forum: General Forum
Topic: Gamma Trading / Scalping
Replies: 7
Views: 33733

Gamma Trading / Scalping

<t>Hi, (I have noticed the plethora of threads with Gamma Trading as there title - PLEAAAASE if you have time stop by)I am having some trouble understanding this concept. If we think implied vol is lower than the volatility that the underlying contract is going to realise through the remaining life ...