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					Finance instruments

Introduction

Currency Vanilla options

Currency Barrier options
1

Introduction
Call option
Payoff

k

ST

Long position = The holder have the right to purchase the underline asset = Paying a premium
2

Introduction
Call option
Payoff

K

ST

SHORT CALL

Short position = The writer obligate to sell the underline asset = Getting a premium
3

Introduction
Put option
Payoff

k
ST

Long position = The holder have the right to sell the underline asset = Paying a premium
4

Introduction
Put option
Payoff

k
ST

Short position = The writer obligate to buy the underline asset = Getting a premium
5

Introduction
Summary
Payoff

K

ST

The options allow us to split /brake the risk of the underline asset
6

Currency derivatives
Buying call Euro put Ils

Spot: 3.5406 1,000,000 : ILS Amount Premium : %2
Expiry : 3 months 0Strike: 3.7

7

Currency derivatives
Buying call Euro put Ils IF

EUR < 3.7 The option will expired

EUR > 3.7 The option will be exercised

8

Currency derivatives
Buying call Euro put Ils

å éøòù øå
Euro>3.7

Euro

ç "ù á ç åø å

ILS profits

4.400 169,189 4.300 142,162 4.200 115,135 4.100 88,108 3.800 7,027 3.774 3.774 =3.7x(1.02)= breakeven 3.73 (11,892) 3.700 (20,000) 3.400 (20,000) 3.100 (20,000) 2.500 (20,000)

Euro<3.7

9

Currency derivatives
Buying call Euro put Ils

payoff Ils

3.7 %2 3.774
(20,000)
10

Euro

Currency derivatives
Collar option

Buying $ CALL strike X

Selling $ PUT strike Y

X>Y

The two options for the same expiry date
11

Currency derivatives
Collar option

( % Buying $ call, Ils put strike 4.06 ( 2

( % Selling $ put, Ils call strike 3.957 ( 1.5
Call 4.030 246,305 1,000,000 4.06 3 months 2.00% Put 4.03 252,717 1,000,000 3.957 3 months 1.50% Spot $ Ils Strike Expiry Premium

12

Currency derivatives
Collar option Payoff Ils

3.957

4.06 4.0803

%0.5

$

13

Currency derivatives
Collar option
$
4.300 4.270 4.141 4.080 4.060 4.050 4.030 4.020 3.957 3.937 3.898 3.800 3.700 3.600 3.500 Stretagy 54,113 46,724 15,000 0 (5,000) (5,000) (5,000) (5,000) (5,000) (10,000) (20,000) (44,677) (69,948) (95,220) (120,492)

Sell PUT$
15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 10,000 (24,677) (49,948) (75,220) (100,492)

Buy CALL $
39,113 31,724 (15,000) (20,000) (20,000) (20,000) (20,000) (20,000) (20,000) (20,000) (20,000) (20,000) (20,000) (20,000)

14

Currency derivatives
Bull spread

Payoff Bull Spread
with Call

Buying call strike 4.1 (%0.5)

Selling call 4.2 (%0.3)

4.1
%0.2

4.2

$

The same expiry date

15

Currency derivatives
Bear spread

Buying call strike Y Selling call strike X
The same expiry date

Bear Spread

OR
Buying put strike Y
X Y

Selling put strike X
The same expiry date
16

Currency derivatives
Covered call

¥/ $ Buying forward Delivery : 3 months

Forward rate 106.5

107.71 spot 9,225 $ 1.21 pips 3 months expiry
17

Currency derivatives
Covered call

Writing $ call ¥ put
getting premium
107.4 spot 9,225 $ 1,000,000 yen 108.4 strike 3 months expiry 1.30% premium
18

Currency derivatives
Covered call

$ price
114.000 112.000 109.809 111.000 108.400 107.300 106.500 105.000 104.000

Covered call
30,527.68 30,527.68 30,527.68 30,527.68 30,527.68 20,380.07 13,000.00 (837.64) (10,062.73)

buy forward sell call
69,188.19 50,738.01 30,527.68 41,512.92 17,527.68 7,380.07 (13,837.64) (23,062.73) (38,661) (20,210) (10,985) 13,000 13,000 13,000 13,000 13,000
19

Currency derivatives
Covered call

payoff ¥

30,527

106.5 108.4

$
20

Exotic option
Barrier options

Option that have an embedded price level ( barrier ), which if reached will either create a vanilla option or eliminate the existence of a vanilla option

21

Exotic option
Barrier options

Barrier is out-of-the money option with respect to the strike

Dollar Call / Canadian Put strike 1.55 expiring in 1 month that has a knock out trigger at 1.50 Spot rate:1.54

22

Exotic option
Barrier options

TRIGGER

1.54

1.50

1.55

$

23

Exotic option
Barrier options

Barrier is out-of-the money option with respect to the strike

Dollar Call / Canadian Put strike 1.55 expiring in 1 month that has a knock in trigger at 1.50 Spot rate:1.54

24

Exotic option
Barrier options

TRIGGER

1.54

1.50

1.55

$

25

Exotic option
Barrier options

Barrier is in-the -money option with respect to the strike

Dollar Call / Canadian Put strike 1.50 expiring in 1 month that has a knock out trigger at 1.56 Spot rate:1.54

26

Exotic option
Barrier options

TRIGGER

1.50

1.54

1.56

$

27

Exotic option
Barrier options

Barrier is in-the -money option with respect to the strike

Dollar Call / Canadian Put strike 1.50 expiring in 1 month that has a knock in trigger at 1.56 Spot rate:1.54

28

Exotic option
Barrier options

TRIGGER

1.50

1.54

1.56

$

29


				
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posted:7/26/2008
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