Training on Fx and Rates Exotic for Banks & Large Corporate Executives
Banks need to prepare for Fx and Rates Exotic options as allowed by RBI. Around 4 months back we conducted a detailed training for one of the largest bank in India. In this environment, we are launching a detailed interactive training over Zoom video.
Training on Fx and Rates Exotic for Banks & Large Corporate Executives
Banks need to prepare for Fx and Rates Exotic options as allowed by RBI. Around 4 months back we conducted a detailed training for one of the largest bank in India. In this environment, we are launching a detailed interactive training over Zoom video.
Session Details
| Session 1 | 18th Apr, 11:00 AM-12:30 PM | RBI Circulars, Background FX exotics: payoffs and instrument descriptions |
| Session 2 | 18th Apr, 1:30-3:00 PM | Fx Exotics structuring and using the options optimally |
| Session 3 | 19th Apr, 11:00 AM-12:00 PM | Trading and pricing considerations for Fx exotics |
| Session 4 | 19th Apr, 1:30-3:00 PM | Interest rate and Hybrid exotics - Instruments and pay offs. |
| Session 5 | 25th Apr, 11:00 AM-12:00 PM | Interest rate and Hybrid exotics - structuring and optimal usage. Risk and mitigations. Pricing. |
| Session 6 | 25th Apr, 1:30-3:00 PM | Implementation and operational aspects for Banks and corporates. |
Session Details
| Sess 1 | RBI Circulars, Background FX exotics: payoffs and instrument descriptions | 18th Apr, 11:00-12:30 |
| Sess 2 | Fx Exotics structuring and using the options optimally | 18th Apr, 13:30-15:00 |
| Sess 3 | Trading and pricing considerations for Fx exotics | 19th Apr, 11:00-12:30 |
| Sess 4 | Interest rate and Hybrid exotics - Instruments and pay offs. | 19th Apr, 13:30-3:00 |
| Sess 5 | Interest rate and Hybrid exotics - structuring and optimal usage. Risk and mitigations. Pricing. | 25th Apr, 11:00-12:30 |
| Sess 6 | Implementation and operational aspects for Banks and corporates. | 25th Apr, 13:30-15:00 |
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Exotic Options Write UP
The background of this writeup is that RBI, in their recent circular, has allowed exotic options to be used in India from 1st June 2020.
I am assuming a reader here knows very well vanilla options which are calls and puts. Now using vanilla options in combination you can make option structures and call them strangle, straddle, seagull, risk reversal, seagull, Call spreads and put spreads, collar or range forwards, ratio forwards, calendar spreads etc. Now these are not exotic options but these will classify as option structures using vanilla options. RBI at times call them cost reduction structures since these options involve sold optionality to reduce option premium for hedging.
Exotic options will be the knock out options, Knock in options, binary options, accruals, target redemption options etc. Let’s take a few examples for an Indian importer – how these structures will look and how they may help. Remember options are like nuclear technology – how you use it is up to you.
Importer’s exotic option examples with hypothetical pricings –
Spot assumed 76.00 , forward rate for 3 months 76.75 with forward premium being 75 paisa. Vanilla option strike 76.00 costs 150 paisa and vanilla option strike 77 costs 75 paisa.
Knock out option example :
- Importers can buy USDINR at 75.00 provided 82.00 is not traded during this 3 months period ever.
- Importers can buy USDINR at 75.75 provided at maturity USDINR spot < 80.00
Knock in option example :
If 75.00 is ever traded during this period then importers will have a simple forward @ 75.00 else if 75.00 is never traded during this period then the forward rate would be 77.50.
Combining Knock in and knock out
If 74.00 is ever traded during this period then importers will have a simple forward @ 75.00 else if 75.00 is never traded during this period then the forward rate would be 76.75. This whole option will knock out if 82.00 is ever traded during this period.
These are only a few examples of how exotic options can be used to appropriately translate your view into a hedge solution. The possibilities are endless. More on exotics coming up soon.
Also we have an upcoming training on exotic options for large banks and corporates. You can call us for more details.