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Core Equity
Financial Products Variance Swap Model A variance swap is a forward contract on annualized variance, the square of the realized volatility. The holder of a variance swap at expiration receives a notional amount of dollar for every point by which the stock’s realized variance has exceeded the variance delivery price. Valuation of the swap involves decomposition of the contract into two periods, one that has become historical, and the other with stock prices still unknown. CDS Index Option Model Market participants are now able to trade in portfolio options whose underlying asset is TRAC-X North America portfolio (with 100 credits) or CDX North America portfolio (with 125 credits). Liquidity is also growing in the European version. The rationale for options based on such indices is that the portfolio effect will reduce the option volatility and make it easier for dealers to hedge. As far as an investor is concerned, this will give a way to take a macro view on spread volatility. Cross Currency Option Model A non-quanto cross currency option is a currency translated option of the type foreign equity option struck in domestic currency, which is a call or put on a foreign asset with a strike price set in domestic currency and payoff measured in domestic currency. Zero Curve Construction We present a Zero Curve Bootstrap Algorithm to allow more cash and futures contracts as underlying instruments for curve generation. Reverse Floor Option A reverse floor option has multiple reset periods before the maturity of the option. At the end of each reset period, a return of the underlying is recorded. The payoff of the option at maturity is related to the accumulated absolute values of those negative returns. We present a pricing model for reverse floor options using Monte Carlo simulation. Strip Rho Calculation Rho is defined as change of the instrument value with respect to 10bps parallel shift of the entire continuous compounding zero curve. Users can input the rate shock amount when requesting rho calculation from the model. The default amount is still 10bps. CDS Option Model If we decide to go long a CDS call today, then this means that we need to pay a premium today for the right and not the obligation to buy a specified forward starting CDS (that is to enter in a specified CDS contract whose effective date is the call expiry date or later as protection buyers), with contract fee set to the call strike, at the call expiry date. Cross Currency Swaption Model A Cross Currency European Swaption gives the holder the option to enter into a swap to exchange cash flows in two different currencies. The domestic and foreign swap leg cash flows can be fixed or floating. Zero Coupon Bermudan Swaption Model A Zero Coupon Bermudan Swaption is a Bermudan Swaption to enter into a Zero Coupon Swap. It can be characterized as a swap where the cashflows are accrued and exchanged at the maturity of the swap. The Floating Leg cash flows are accrued at the realised floating rates and the Fixed Leg cash flows are accrued at the specified vector of fixed rates. Bermudan Swaption Introduction We prices a Bermudan style swaption using a Monte Carlo technique, which is based on the approach proposed by Longstaff and Schwartz towards American style pricing using simulation. In particular, at every exercise time, we must solve a linear least squares problem, and then decide whether to exercise the option. Variance Swap Introduction Volatility skew for the underlying stock should and can be incorporated into the pricing of variance swaps. If no reference strike price and option data are supplied, the model will use the strike that is closest to the base spot price in the volatility skew file corresponding to the closest time to maturity |