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Option replication and exotics journal
- Thread starter riskarb
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Quote from riskarb:
DAX double:
Traded the 7d 4900/4750 double barrier[range]. Entire premium paid is lost if either strike is hit. This differs from a conventional double-knockout in which the opposing strike would remain "live" if one were hit. A fixed payout of $150k EUR is paid if neither k/o barrier is reached. Position risk and payment for the position is $50k EUR. I've been using various models to price; finite difference, Laplace transforms, among others.
Dax double barrier[binary k/o range] -- 4900/4750 K/Os
Premium: $50,000 EUR
Payout: $150,000 EUR [includes prem paid]
Expires: Aug 3, 2005
Negative edge: $9,000 EUR
A short strangle would be the analogous position in the vanilla-options. Obviously there are significant differences. There are no binary conditions with a vanilla straddle, yet risk is unlimited on the call[vanilla].
Defined: Short gamma/vega binary-strangle with a debit haircut. I own a piece of this trans, brother's fund is the holder.
It's dead... out $28k EUR net after hedge. I am pricing a 4795/4945 7d dbl. barrier now.
Dax double barrier[binary k/o range] -- 4795/4945 K/Os
Premium: $62,000 EUR
Payout: $150,000 EUR [includes prem paid]
Expires: Aug 4, 2005
Negative edge: $9,800 EUR
Neutrality: 4870 basis DAX cash
The vanilla straddle isn't a viable hedge -- will scale into futures into the bull risk above 4910 on cash. Bought 7 FDAX at 4910 avg as initial hedge.
Premium: $62,000 EUR
Payout: $150,000 EUR [includes prem paid]
Expires: Aug 4, 2005
Negative edge: $9,800 EUR
Neutrality: 4870 basis DAX cash
The vanilla straddle isn't a viable hedge -- will scale into futures into the bull risk above 4910 on cash. Bought 7 FDAX at 4910 avg as initial hedge.
Quote from riskarb:
Dax double barrier[binary k/o range] -- 4795/4945 K/Os
Premium: $62,000 EUR
Payout: $150,000 EUR [includes prem paid]
Expires: Aug 4, 2005
Negative edge: $9,800 EUR
Neutrality: 4870 basis DAX cash
The vanilla straddle isn't a viable hedge -- will scale into futures into the bull risk above 4910 on cash. Bought 7 FDAX at 4910 avg as initial hedge.
Covered the 7 FDAX for a 6 point loss. I will leave it some room to breath. No hedge
No hedging to report on the DAX position. Everyone seemed to be positioning themselves to be long into the GDP. Dax has just fallen off a cliff intraday, so all looks good for the weekend. The mark on the position is 68kEUR bid, showing a bit of edge after 24h.
I'll be looking to enter another long vol-box in listed equity index, but I have to get some sleep; my 18mo was up all night, as was I.
I'll be looking to enter another long vol-box in listed equity index, but I have to get some sleep; my 18mo was up all night, as was I.
Quote from riskarb:
Dax double barrier[binary k/o range] -- 4795/4945 K/Os
Premium: $62,000 EUR
Payout: $150,000 EUR [includes prem paid]
Expires: Aug 4, 2005
Negative edge: $9,800 EUR
Neutrality: 4870 basis DAX cash
The vanilla straddle isn't a viable hedge -- will scale into futures into the bull risk above 4910 on cash. Bought 7 FDAX at 4910 avg as initial hedge.
Sold the binary at $96,800 this morning at 2:20PDT w/DAX spot at 4920~. Concerned that we'd get one more thrust to the call-barrier. $33k net after hedge... +$5k net on DAX binary positions to date. ET server was down when attempting to post the offset.
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