Finance instruments

1
Finance instruments

Introduction

Currency Vanilla options

Currency Barrier options
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Introduction
Call option
Not include premium
Long position The holder have the right to
purchase the underline asset Paying a premium
3
Introduction
Call option
Not include premium
Short position The writer obligate to sell the
underline asset Getting a premium
4
Introduction
Put option

Not include premium
Long position The holder have the right to
sell the underline asset Paying a premium
5
Introduction
Put option
Not include premium
Short position The writer obligate to buy the
underline asset Getting a premium
6
Introduction
Summary
NOT INCLUE PRIMUM
The options allow us to split /brake the risk of
the underline asset
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Currency derivatives
Buying call Euro put Ils
Example
Spot 3.5406 1,000,000 ILS Amount Premium
2 Expiry 3 months 0Strike 3.7
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Currency derivatives
Buying call Euro put Ils
IF
Three months later
EUR lt 3.7 The option will expired
EUR gt 3.7 The option will be exercised
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Currency derivatives
Buying call Euro put Ils
Sensitivity analysis
3.774 3.7x(1.02) breakeven
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Currency derivatives
Buying call Euro put Ils
Graphical presentation
11
Currency derivatives
Collar option
LONG
Buying CALL strike X Selling PUT strike Y
XgtY
The two options for the same expiry date
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Currency derivatives
Collar option
Example
1
( Buying call, Ils put strike 4.06 ( 2
( Selling put, Ils call strike 3.957 ( 1.5
2
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Currency derivatives
Collar option
Graphical presentation
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Currency derivatives
Collar option
Sensitivity analysis
15
Currency derivatives
Bull spread
Example
Buying call strike 4.1 - (0.5)
Selling call 4.2 - (0.3)

The same expiry date
0.2
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Currency derivatives
Bear spread
1
OR
Payoff
2
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Currency derivatives
Covered call
/
1
/ Buying forward Delivery 3 months
Forward rate 106.5
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Currency derivatives
Covered call
2
/
Writing call put
getting premium
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Currency derivatives
Covered call
Sensitivity analysis
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Currency derivatives
Covered call
Graphical presentation
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Exotic option
Barrier options
Definition
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
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Exotic option
Barrier options
Barrier is out-of-the -money option with respect
to the strike
Example
Dollar Call / Canadian Put strike 1.55 expiring
in 1 month that has a knock out trigger at
1.50 Spot rate1.54
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Exotic option
Barrier options
Example
payoff
TRIGGER
1.54

1.55
1.50
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Exotic option
Barrier options
Barrier is out-of-the -money option with respect
to the strike
Example
Dollar Call / Canadian Put strike 1.55 expiring
in 1 month that has a knock in trigger at
1.50 Spot rate1.54
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Exotic option
Barrier options
Example
payoff
TRIGGER
1.54

1.55
1.50
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Exotic option
Barrier options
Barrier is in-the -money option with respect to
the strike
Reverse knock out
Dollar Call / Canadian Put strike 1.50 expiring
in 1 month that has a knock out trigger at
1.56 Spot rate1.54
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Exotic option
Barrier options
Reverse knock out
payoff
TRIGGER

1.56
1.54
1.50
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Exotic option
Barrier options
Barrier is in-the -money option with respect to
the strike
Reverse knock in
Dollar Call / Canadian Put strike 1.50 expiring
in 1 month that has a knock in trigger at
1.56 Spot rate1.54
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Exotic option
Barrier options
Reverse knock in
payoff
TRIGGER

1.56
1.54
1.50