Exotic options portfolio

akimon · Post by **akimon** » Sun Jul 02, 2006 2:29 pm

"For instance, I have an Euribor CRA position that tends to trade very short, while the greeks keep showing up as long."

how come the greeks keep showing up as long when it's clearly short? that's bizarre. Does it have both upper and lower barriers or something like that?

add my 2bps: in FI-land it's a good idea to keep all triggerable products like TARNs and snowblade together. Keeping an eye on triggers can avoid blowing up.

Don't neglect your theta decay for RA and CMS spread RA type products. In the long run it can bleed you to death, as most of these are just carry trades (but theta goes for you as vega changes signs when it crosses the barriers).

Strange · Post by **Strange** » Sun Jul 02, 2006 2:49 pm

well, there are few reasons for it - one is the model we are using is not really suitable for short-rate callable compound options. Another is the fact that some of them are pretty close to the barriers so my gamma keeps jumping back and fourth. Also, the short-end vols are marked of the Euribors and, lately, there is a clear tendency to sell put-side vol in a selloff and buy em back in the rally.

Agree completely with regards to keeping all autocallables and other trigerrable products together. Also, very usefull to have trigger reports in 2-d (time and price-action) and know changes to your risk if they are hit.

As for theta, you can either keep the gamma and be bleeding or go the other way. So, either a slow beeding death or a bullet to the head. If you are long gamma in these, you have to rehedge your delta much more agressively, but at least a spectacular blowup is not very likely.

ps. one more thing - general IR exotics traders MO is to be a bit short, since this way you can offset "rates up, exotic issuance down" effect a bit.

akimon · Post by **akimon** » Mon Jul 03, 2006 4:54 pm

well.. rates up, make money buying back dead exotic IR notes.. :)

Strange · Post by **Strange** » Sat Jul 08, 2006 9:03 pm

Assuming you got a good secondary MTN program, yes. Lot's of people asking of bybacks and you can restructure issues and so on. Not a bad business to be in, especially after a lot of people got p*ucked on CMS spread options last year.

dgtvr · Post by **dgtvr** » Mon Jul 14, 2008 9:06 pm

Could someone delve into a few of the better software packages for managing various risk parameters, especially with dividing up positions with customizable filters and incorporating skew risk for IR options?