FX Options and Structured Products (eBook)

UWE WYSTUP is the founder and managing director of Math-Finance AG, a consulting and software company specializing in quantitative finance, implementation of derivatives models, valuation and validation services. During his career, he worked as a financial engineer, structurer and consultant in FX options trading teams for such banks as Commerzbank, Deutsche Bank, Citibank, UBS and Sal. Oppenheim jr. & Cie. An internationally known FX options expert in academia and practice, he lectures on financial engineering as an honorary professor at Frankfurt School of Finance & Management and a professor of financial option price modeling and foreign exchange derivatives at Antwerp University, in addition to giving seminars all over the world. He coedited (with Jürgen Hakala) the industry standard, Foreign Exchange Risk.

0 Preface 17

0.1 Scope of this Book 17

0.2 The Readership 18

0.3 About the Author 19

0.4 Acknowledgments 19

1 Foreign Exchange Derivatives 21

1.1 Literature Review 21

1.2 A Journey through the History of Options 21

1.3 Currency Options 23

1.4 Technical Issues for Vanilla Options 24

1.5 Volatility 55

1.6 Basic Strategies Containing Vanilla Options 83

1.7 First Generation Exotics 104

1.8 Second Generation Exotics (Single Currency Pair) 192

1.9 Second Generation Exotics (Multiple Currency Pairs) 217

2 Structured Products 237

2.1 Forward Transactions 237

2.2 Target Forwards 291

2.3 Series of Strategies 320

2.4 Deposits, Loans, Bonds and Certificates 324

2.5 Interest Rate and Cross Currency Swaps 344

2.6 Participation Notes 376

2.7 Hybrid FX Products 381

2.8 Treasury Case Studies 389

3 Hedge Accounting 403

3.1 Hedge Accounting under IAS 39 403

3.2 Hedge Accounting under IFRS 9 475

4 Foreign Exchange Markets 483

4.1 Vanna-Volga Pricing 483

4.2 Bid-Ask Spreads 495

4.3 Systems and Software 498

4.4 Trading and Sales 500

4.5 Currency Pairs 506

4.6 Things to Remember 510

4.7 Glossary 510