Archive for category Risk Management

Practical use of the Delta: Delta neutral management

An FX option position induces a risk, just as a spot or a forward position. A “delta neutral” management consists into fitting an option position with an FX Spot equivalent to compensate changes in risk induced by the option. Example for a seller of a Call FX option: The risk on its position is to get exercised […]

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Introduction to Delta

Delta is one of many indicators that option pricing models are providing (Greeks). It represents the practical level for exercising an option. Consider a call option. During life, before its expiry date: – If the forward price is below the strike price (call out of the money), the option has less than one chance out of two of being […]

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Implied and historical volatility

Volatility is one of the parameters needed to calculate the price of a currency option between its trade date and expiration date. Other parameters provided by the markets are: the spot price of the underlying, interest rates of the two currencies involved. The valuation model used for the European style currency options (vanilla) is Garman-Kohlhagen. […]

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