The most comprehensive educational resources for finance

Understanding Three Different Types of Binary Options Trades

Are you looking to get into the fast paced world of binary options investing? In the last few years, the popularity of binary options investing has surged as investors have come to realize the benefits and big payouts that binary options offer. For many first time binary options investors, it can be tough to figure

Case Study: Equity Derivative Losses at UBS

In 1997, United Bank of Switzerland lost heavily in the equity derivatives market, with estimated losses  pegged between $400 and $700 million. It is said to have lost $700 million in long positions in LTCM (Long Term Capital Management). The UBS case speaks strongly for strong internal risk control measures and adherence to the same.

Off-market Forward Contracts

As we know, a forward contract is a bilateral agreement between a buyer and seller to exchange a certain quantity and quality of an asset for a pre-determined price at a specified future date. A forward contract does not involve an exchange at the beginning of the contract, however, on the future date both the

Important Notations in Options Formulas

In the tutorial on risk management applications of options, we will look at how various options strategies can be used for managing risk in a company. Before we start let’s review the key notations used in options formulas: Time 0 refers to the time when an options strategy is initiated Time T refers to the

Equity Swap Example

In an equity swap, two parties agree to exchange a set of future cash flows periodically for s specified period of time. Once leg of the equity swap is pegged to a floating rate such as LIBOR or is set as a fixed rate. The cash flows on the other leg are linked to the

Swap Termination

A swap is an agreement between two parties where they agree to exchange the cash flows on different assets for a specified period of time. For example, in a vanilla interest rate swap, two parties agree to exchange the interest obligations on their loans. One party pays interest based on a floating interest rate while

Option Greeks

This video familiarizes traders with a set of Greek risk factors used to monitor a portfolio’s profile. It explains the five key greeks: Delta: The relative change in an option’s price for a given change in the underlying asset. Gamma: The rate of change of delta for a given change in the underlying asset’s price.

Futures – Mechanics of Interest Rate Trading

This video is designed to help introduce investors to key factors surrounding monetary policy, the economy and how interest rates are set. Investors will learn about yield curves, what causes the curve to change shape and how expectations about the future price of money play an integral role. We explain the key trading tools for

How Interest Rates and Volatility Affect Option Prices?

Both interest rates and underlying stock’s volatility have an influence on the option prices. Impact of Interest Rates When interest rates increase, the call option prices increase while the put option prices decrease. Let’s look at the logic behind this. Let’s say you are interested in buying a stock which sells at $10 per share.

Should American Options be Exercised Early?

As we know, unlike a European option, the holder of an American option can exercise the option before the expiry date. Because of this additional benefit of being able to exercise the option early, an American option is always more expensive than a European option. However, is this benefit of any real use, that is,