Exotic options
AI and Trump tariffs spur hyped-up dispersion trade
Popular vol strategy pays off in January despite highest entry costs on record
Hedge funds pile into short volatility QIS options
New twist on capturing vol premium remains popular despite mixed performance in August vol spike
Exotic FX derivatives bets in play as US election vol jumps
Forward volatility agreements see profits for funds; new trades include vol knockouts
Low FX vol regime fuels exotics expansion
Interest is growing in the products as a way to squeeze juice out of a flat market
Collapse of correlation fails to stem zeal for dispersion
New analysis suggests immensely popular relative value strategy may have more upside
How steepener trades burned hedge funds, and what happened next
Delays to central bank rate cuts torpedo popular trade, causing funds to pull capital – to the chagrin of sell-side desks
RMB vol returns as hedge funds take barrier trade profits
Unwinds of exotic positions saw vol jump 72% after surprise PBoC move last week
Standardised FRTB leaves banks befuddled on residual risk
Benchmarking exercises find “weak consensus” among banks over notional values for exotics
Digging deeper into deep hedging
Dynamic techniques and GenAI simulated data can push the limits of deep hedging even further, as derivatives guru John Hull and colleagues explain
Joint S&P 500/VIX smile calibration in discrete and continuous time
An arbitrage-free model for exotic options that captures smiles and futures is presented
Hedge funds ease off profitable China FX options trade
Some still hold positions but an appreciating renminbi may make them less profitable for now
Japan autocall curbs upend Nikkei vol
Lack of reinvestment alongside FSA review forces scramble to buy back hedges as products knock out
Structured products house of the year: JP Morgan
Risk Awards 2023: Tech investment propels fixed income expansion and back-to-back autocall hedges
Vega decomposition for the LV model: an adjoint differentiation approach
Introducing an algorithm for computing vega sensitivities at all strikes and expiries
‘Perfect’ VKO trades knock the smile off vol
Dealer hedging of options which profit from ‘spot down, vol down’ may have amplified rare dynamic
Swap rate: cash-settled swaptions in the fallback
A fallback pricing method that reduces vanilla swaptions’ complexity is introduced
Semi-analytic conditional expectations
A data-driven approach to computing expectations for the pricing and hedging of exotics
Singular exotic perturbation
A solution based on local volatility and sensitivities is proposed to calculate exotics' prices
Yen exotics re-hedging fuelled vol surge, say traders
USD/JPY spike forced dealer stampede into call options, pushing FX vol even higher
Rough volatility moves to exotic frontiers
New simulation scheme clears the way for broader application of the rough Heston model
JP Morgan testing deep hedging of exotics
Neural network trained to hedge complex options using simulated data expected to go live this year