Short-term volatility position, Financial Management

Assignment Help:

(a) The position of an agency that sells a callable coupon bond. We supposed that coupon bond has a maturity of 3 years and is callable only at the second year.

(b) The market thinks that the short term volatility reduces as FED's plans become clearer. The long term volatilities may perhaps increase because mortgage players hedge as FED cuts interest rates.

(c) A straddle is a long call as well as long put at the same strike price. The swaption long straddle is a long position in the swaptions which are described above. Its cash flow is displayed below

Therefore the traders take a long straddle position on the long dated swaptions and short straddle position on the short dated swaptions.

(d) If expectations are realized all positions would be in the money.

Trader has supposed a short position on short term volatility and short term volatility is lower. When this position is stopped it would be in the money. The trader as well has assumed a long position on the long term volatility and the long term volatility is higher therefore this position is in the money as well. Consequently the positions can simply be unwound.

(e) The investor is able to make money only if long term volatility increases in the case of CSFB. Where like in the case of Lehman even if long term volatility doesn't increase or even it reduce earnings from short-term volatility position would offset the losses.


Related Discussions:- Short-term volatility position

Forms of bank finance, Q. Forms of Bank Finance? A firm can draw funds ...

Q. Forms of Bank Finance? A firm can draw funds from a bank within the maximum credit limit sanctioned. It can draw funds in the following forms: 1) Overdraft 2) Cash Cre

Case let 1, which type of approaching to each firm

which type of approaching to each firm

Review of career plans, Review of career plans: career plans, emerging out ...

Review of career plans: career plans, emerging out of career planning exercise, have long term orientation. A career plan is developed based on assumptions about how the environmen

Net income that the company distributes to shareholders, The dividend is th...

The dividend is the part of the net income that the company distributes to shareholders. As the dividend represents real money, the net income is also real money. Is that true?

What does high inflation have on the value of a business, What impact does ...

What impact does high inflation have on the value of a business? Besides causing distortion (as it unequally affects all goods and services), inflation enhances the uncertainty

Statement showing working capital requirement, Current Assets:- Stoc...

Current Assets:- Stock of Raw-Materials :- [(Cost of yearly consumption Of raw material)*{ (Average Inventory holding period (weeks/months))}/(52 weeks / 12 months)]=

Portfolio management, Portfolio Management: Project Portfolio Manageme...

Portfolio Management: Project Portfolio Management (PPM) is the centralized management of processes, technologies and methods used by project management offices (PMOs) and pro

What are the government securities - debt securities, What are the Governm...

What are the Government Securities Government is one of the biggest borrowers from capital and money market. We have already taken a look at money market securities offered by

Determine the management buy-outs, Determine the Management buy-outs ...

Determine the Management buy-outs Management buy-outs (MBOs) The management of company buy out the shareholders. Management will usually require financial backers (ventu

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd