instruments in interest-rate, currency and ... - Volksbank AG

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ExamplePurchase call option strike 100 Barrier: KO 96.00 Purchase call option strike 100 Barrier: RKO 108The illustration on the right shows the clear increase in loss after reaching the barrier and the resultinginvalidation of the hedging transaction. In contrast, the knock out price in the illustration on the left is alwayswithin the profit zone of the underlying transaction and thus offers the possibility of reacting to the new situation.Knock in/Reverse knock-in optionsThese options become valid only after the barrier is reached during the term. If it is not reached, the optionhas no value.ExamplePurchase call option strike 100 barrier: KI 96.00 Purchase call option strike 100 RKI 10847
European and American barriersWith respect to barrier options, there is a difference between European and American barriers. The differenceis that the European barriers only apply on the last day, whereas the American barriers apply during the entireterm. The purchase of an option with a European barrier is therefore more expensive.Strategy: the “knock in forward”The importer purchases a foreign currency call option and sells a foreign currency put option; both optionshave the same exercise price, but the put has a reverse knock in. This is also a zero-cost variant of hedgingby which, however, the exercise price is somewhat above the comparable forward rate. But it offers additionalpotential for profit as long as the price never reaches the knock in price during the term, because the traderprofits from continually falling prices until the barrier is reached.ExampleThe forward rate on 3 months is 103Hedging with knock in forwardis possible at 104:Purchase of call Strike 104 Premium -2Sale of put Strike 104 RKI 98 Premium 2Total premium: 0Term: 3 monthsAt expiration date:Price > 104Hedged by purchase of call at 104Price < 104 and > 98free conversion in the marketPrice < 98Conversion at 104 via sale of putDouble barriersDouble knock in or double knock outThese options have two barriers and become valid or invalid when either of the trigger prices is reached.48
Page 4 and 5: Group Treasury at Volksbank AG (VBA
Page 7 and 8: The decision between hedging and po
Page 11 and 12: FORWARD RATE AGREEMENTSINTEREST-RAT
Page 13 and 14: Example 2: Liabilities side - from
Page 15 and 16: In the step-up swap, the nominal am
Page 17 and 18: Transaction in course:A company is
Page 19 and 20: nStep 3: Re-exchange of the princip
Page 21: Initial exchange, to be replaced by
Page 24 and 25: 3M EURIBOR Loan3M EURIBORCompany3M
Page 26 and 27: INTEREST OPTIONSCAPWhat is a cap?A
Page 28 and 29: Termination of a capis possible at
Page 30 and 31: FLOORWhat is a floor?The complement
Page 32 and 33: COLLARWhat is a collar?A collar is
Page 34 and 35: Termination of a swaptionis possibl
Page 36 and 37: CURRENCY MANAGEMENTA large part of
Page 38 and 39: ExampleSought:CHF/JPY-rate determin
Page 40 and 41: Termination of a forward exchange t
Page 42 and 43: Types of optionsPlain vanilla optio
Page 44 and 45: eceives the option premium credited
Page 46 and 47: Participating optionThe participati
Page 50 and 51: Step payment optionsAs with the con
Page 52 and 53: Knock in / Knock out optionOne of t
Page 55 and 56: with regard to the fixing of prices
Page 57: Energy futures trades * )Table 3Abb
Page 60 and 61: RISK MANAGEMENTEvery company is for
Page 62 and 63: How easily can this risk be elimina
Page 64 and 65: Monte Carlo simulation/Variance/cov
Page 66 and 67: ExampleJPY creditCurrent price 100.
Page 68 and 69: CALCULATION OF THE CORRELATED VALUE
Page 70: The worst risk value would be on a
Page 73 and 74: CALL OPTION Is the right to buy tha
Page 75 and 76: FORWARD/FORWARD See credit forward.
Page 77 and 78: NOMINAL INTEREST RATE The nominal i
Page 79: TRADING Deliberately entering into
Page 82 and 83: International FX practices (key cur

instruments in interest-rate, currency and ... - Volksbank AG

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