This is the second in the series on the calculation of Pre-settlement Risk (PSR) & Potential Future Exposure (PFE) for FX derivatives. We extend the model we used to calculate the PSR & PFE risk measures for a call option to a forward contract and

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Pre-settlement Risk (PSR) & Potential Future Exposure (PFE) are calculated to assess counterparty credit risk for derivative transactions. PSR calculates the risk of a counterparty default at a static point in time while PFEs assess the risk over the life time of the transaction. The

The post Pre-settlement Risk (PSR) & Potential Future Exposure (PFE) – Call, Forward & TARF – Part 1 appeared first on Finance Training Course.

Excel convergence hacks for TARF pricing models. Convergence between closed form and simulation model prices is enhanced with variance reduction procedures. It encourages model extension to complex products. For our TARF pricing model in its original form convergence is a challenge. We will try and

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Excel TARF Pricing Models – Black Scholes approach Our alternate Excel TARF Pricing model uses the Black Scholes close form solution to find a price. The TARF contract described in the product term sheet above is equal to having a series of forward contracts that

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TARF Pricing Models Our two part series on TARF pricing models begins where we stopped with our analysis on TARF hedge effectiveness. We cover both vanilla TARF (without any path dependent options) and Knock in Knock out (KIKO) TARF’s in that discussion. In this post

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USD JPY FX options convention. For business school students taking the treasury product exam or preparing for a trading desk interview, the USD JPY pair is particularly troublesome. Here is a list of common errors and challenges side by side with four simple examples for

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USD JPY FX options convention. For business school students taking the treasury product exam or preparing for a trading desk interview, the USD JPY pair is particularly troublesome. Here is a list of common errors and challenges side by side with four simple examples for

The post FX Currency Options – The USD JPY FX options convention appeared first on Finance Training Course.

IBNR reserve, Unearned Premium Reserve (UPR) & Premium Deficiency Reserve (PDR) IBNR reserves are a part of claims reserves estimated by insurers for reporting on their financial statements. Claims reserves are estimates of claims that have occurred on or before the financial statement report date

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A brief ‘To-Do’ list for IBNR reserve, Unearned Premium Reserve (UPR) & Premium Deficiency Reserve (PDR) estimation IBNR reserves are a part of claims reserves estimated by insurers for reporting on their financial statements. Claims reserves are estimates of claims that have occurred on or

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In the previous post we reviewed the credit risk requirements under the internal ratings based (IRB) and advanced measurement approaches (AMA). In this post we focus on the various methods to recognize financial collateral in counterparty credit risk calculations. Eligible collateral is used to mitigate

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