Managing Currency Options in Financial Institutions: Vanna-Volga method

Cover
Title
Copyright
Contents
List of figures
List of tables
About the authors
Preface
1 Introduction
	1.1 Background
	1.2 Management of currency options
	1.3 Currency option valuation
	1.4 Importance of currency option valuation
	1.5 Book objective
	1.6 Questions
	1.7 Deliverables
	1.8 Contributions
2 Development of theories on currency option management
	2.1 Vanilla European currency options
	2.2 Black-Scholes model
		2.2.1 Currency option valuation
		2.2.2 Greeks
		2.2.3 Taylor expansion
	2.3 Implied volatility
		2.3.1 Volatility smile
		2.3.2 Volatility surface
	2.4 Trader’s rule of thumb
		2.4.1 25-Delta risk reversal and 25-Delta butterfly
		2.4.2 Currency option valuation
	2.5 Malz formula
	2.6 Value-at-risk
		2.6.1 VaR amount at 99th percentile confidence level over a one-day horizon
		2.6.2 Forecasting of standard deviation
		2.6.3 Back testing
	2.7 Dynamic portfolio replication
		2.7.1 Temporal interpolation
	2.8 Benchmarking
3 Volatility recovery
	3.1 Theoretical framework
		3.1.1 Fundamental problem
		3.1.2 Volatility recovery approaches
	3.2 Assessment methodology
		3.2.1 Scenarios
		3.2.2 Domain of application
		3.2.3 Overall accuracy of volatility recovery approaches
		3.2.4 Comparison of volatility recovery approaches
		3.2.5 Unit of analysis
		3.2.6 Variables
		3.2.7 Measurement
		3.2.8 Sample selection
		3.2.9 Data analysis
		3.2.10 Hypothesis construction
	3.3 Results and discussions
		3.3.1 Major currency analysis
		3.3.2 Stress analysis
		3.3.3 CNY analysis
		3.3.4 Domain of application
	3.4 Conclusions
4 Value-at-risk calculation
	4.1 Theoretical framework
		4.1.1 Delta-Gamma noncentral Chi-squared VaR methodology
		4.1.2 Kupiec-Lopez test
	4.2 Analysis approach
		4.2.1 Scenarios
		4.2.2 Unit of analysis
		4.2.3 Variables
		4.2.4 Measurement
		4.2.5 Sample selection
		4.2.6 Secondary data collection
		4.2.7 Data analysis
		4.2.8 Hypothesis construction
	4.3 Results and discussions
		4.3.1 Major currency test
		4.3.2 Stress analysis
		4.3.3 CNY analysis
	4.4 Conclusions
5 Dynamic portfolio replication
	5.1 Theoretical framework
	5.2 Analysis approach
		5.2.1 Scenarios
		5.2.2 Unit of analysis
		5.2.3 Variables
		5.2.4 Measurement
		5.2.5 Sample selection
		5.2.6 Secondary data collection
		5.2.7 Data analysis
		5.2.8 Hypothesis construction
	5.3 Results and discussions
		5.3.1 Major currency test
		5.3.2 Stress analysis
		5.3.3 CNY analysis
	5.4 Conclusions
6 Conclusions
References and further readings
Index