I did not think mutual funds could be traded as any other underlying... if so, delta neutrality can be easily met.And in case I had to hold a "short" position in mutual funds?

currently, in Europe, most options on mutual funds are mainly created to be the option part in fund-linked notes (ie. capital guaranteed products marketed as insurance policy).in most case, these options are calls. so the bank who sells the option has to BUY mutual funds parts to make her hedge.the common problem is to make the bank's trader/back office to have efficient relations with mutual funds managers/back-office.

I got a sort of sales brochure in which is described a sort of wrapped product (a basket of mutual funds with warranty of capital protection). The protection relies on a warrant put issued on this basket: I can exercise this put so that I can get protection of capital initially invested. But I was also told that the issuer of the warrant is goin' to hedge his basket option via an IRS. Do you think it's possible?

QuoteOriginally posted by: ComteZerocurrently, in Europe, most options on mutual funds are mainly created to be the option part in fund-linked notes (ie. capital guaranteed products marketed as insurance policy).in most case, these options are calls. so the bank who sells the option has to BUY mutual funds parts to make her hedge.the common problem is to make the bank's trader/back office to have efficient relations with mutual funds managers/back-office.Note that in most banks mutual funds are managed by a seperate entity holding of the Bank.Second, unofficially i ve noticed that capital guaranteed products are engineered in such a way that rarely end in the money. I just wonder if they are used just as a source of cheap funding (cheaper than a time deposit account). Perhaps a book on marketing financial services can give you some insights Third, dont get stuck on the way these products are hedged. Perhaps there is no reason to be hedged. On the other hand, Banks can aggregate and disaggregate and diverisfy risks at the firm level and not nessacarilly at the product level. The firm level matters more since it determines the Capital Adequacy Requirements. In other words, its clearly an asset mix problem.RegardsAnthis

Hi does anybody know please how can we generate 3 independant brownian motions using Excel??Thanks for your help

learn a bit more about choleski transformations