Equity Derivatives Products
This section describes the various types of Equity Derivatives products supported by Calypso. Help is available from all trade worksheets - Choose Help > Trade Help in any trade worksheet for complete details.
Functions common to all trade worksheets are described under Calypso Front Office Tools documentation: trade functions, trade menus, Details panel, Cashflows Panel, and Fees panel.
See Front Office Tools for details.
Trades can be captured from the Trade > Equity menu in Calypso Navigator or in a Trade Blotter.
Equity Derivatives
| Product Name | Definition | Trade Worksheet | ||||||
|---|---|---|---|---|---|---|---|---|
| Equity / ADR | Trade equities and American Depository Receipts (ADRs). | Trade > Equity > Equity/ADR | ||||||
| Equity Forward | An Equity Forward transaction is an Over-the-Counter (OTC) trade between two parties to buy or sell an asset at a specified price on a forward date. The underlying can be an equity, an equity index, or a basket. | Trade > Equity > Equity Forward | ||||||
| Fund |
Refer to the Asset Management User Guide for details about setting up funds and trading unitized funds. |
Trade > Equity > Fund | ||||||
| Mandate |
Refer to the Asset Management User Guide for details about setting up and trading mandates. |
Trade > Equity > Mandate | ||||||
| Equity Swap |
An Equity Swap trade is a swap where a set of future cash flows are exchanged between two counterparties. The legs of the swap can be based on an interest rate, equity, equity index, or basket. |
Trade > Equity > Equity Swap | ||||||
| Dividend Swap | A Dividend Swap is an OTC agreement between two counterparties to exchange Realized Dividends versus a Fixed(Strike) Dividend on one or more Forward Dates. The Fixed Strike is stated in units of the underlying. A Dividend Swap is always cash settled. | Trade > Equity > Dividend Swap | ||||||
| Contract for Difference | A Contract for Difference (CFD) offers you the ability to buy or sell equity without actually having the stock, and to receive the dividend (or part of the dividend) against a commission. The advantage for the clients is that they do not have any stamp duty or brokerage fees; they just pay a commission. Another advantage is that they can be short on a security. | Trade > Equity > Contract for Difference | ||||||
| Equity Lending |
In a Security Lending trade, you can lend or borrow equities or bonds. Typically the borrower obtains legal custody of the securities. The borrower must redeliver the securities at a future date. The borrower may have to provide a security equal to the borrowed value, and an interest amount to buffer against the changing price of the loaned securities in case of default. The lender receives a fee that the parties negotiate at the time of the transaction.
|
Trade > Security Finance > Sec Lending | ||||||
| Variance Swap |
An OTC contract whose value at maturity is based on the realized volatility experienced by the underlying, usually a stock or equity index. Pricing is based on implied volatility levels found in relevant listed option prices. There is no upfront premium for the Variance Swap and it is cash settled. The Variance Swap can be price weighted and have conditions. Pricing of Flexo/Compo/Quanto is not currently supported. |
Trade > Equity > Variance Swap | ||||||
| Correlation Swap |
A Correlation Swap is an OTC transaction between two parties to exchange the difference between a “Strike Correlation” and the “Realized Correlation”. The Correlation is calculated based on the period including the Observation Start Date and Observation End Date. |
Trade > Equity > Correlation Swap | ||||||
| Listed Option | Exchange traded equity options offer “physical delivery” or cash settlement when exercised. The owner of an ETO option can exercise the contract at any time prior to the exercise deadline set by the investor’s brokerage firm. Generally this deadline occurs on the option’s last day of trading. | Trade > Equity > Listed Options | ||||||
| Listed Future | A future contract is a collection of future products traded on a given exchange at a given expiry month (for example, the EUROLIBOR 3-month traded on the Chicago Mercantile Exchange defines three future products on JUN12, SEP12, DEC12). | Trade > Equity > Listed Futures | ||||||
| Listed Future Option | A future option contract is a collection of future option products traded on a given exchange at a given expiry month. | Trade > Equity > Listed Future Options | ||||||
| Portfolio Swap | An agreement between counterparties to swap cash flows on fixed dates in the future over a certain period of time, where one flow is based on an equity's performance and the other on a fixed or floating interest amount as calculated using the notional value. The agreement is defined by a customized contract that serves to meet the requirements of both parties. | Trade > Equity > Portfolio Swap | ||||||
| Warrant |
The right to buy an underlying security at a certain price, quantity and future time. A warrant is issued by the issuer of the underlying security or a third party. |
Trade > Equity > Warrant/Certificate | ||||||
|
Warrant Issuance |
Issuance of a warrant. |
Trade > Equity > Warrant/Certificate Issuance | ||||||
| Equity Structured Option |
Trade one of the following types of options: Vanilla – Gives the buyer the right, but not the obligation, to buy or sell an equity or equity index at a fixed price on or before a specified date. Asian – Asian or average rate options derive the final spot as the arithmetic or geometric average of a series of pre-specified dates. There are several combination of Asian: Asian Strike => geometric or arithmetic average of observations to compute the strike Lookback Strike => strike is the min (for a call) or max (for a put) over a period Asian rate => geometric or arithmetic average of observations to compute the final spot Lookbackrate => spot is the min (for a put) or max (for a call) over a period There are also double Asian: Asian strike + Asian rate Asian strike + Lookback rate Lookback strike + Asian rate Lookback strike + Lookback rate Geometric average options where the average is ((x1…xn)1/n), have a closed form solution, but are far less common in practice than arithmetic averages. Arithmetic average options where the average is ∑xn, cannot be valued using a closed form solution. There are approximations (Turnbull and Wakeman 1991), that are fairly accurate, or Monte Carlo simulations can be applied. Asian option pricing algorithms use the term structure of dividends and volatilities to price the forward resets. You have the option to use a single interest rate, dividend rate, or volatility to price. The Asian option window includes a section to generate the Asian dates, and a section to view the generated dates. Barrier – Barrier (or Knock) options are standard options whose value depends on whether a certain barrier is reached. Options can be knocked "in" or "out".
It is possible to include a previously specified cash rebate, which is paid out if an "In" option is never knocked in, or an "out" option is knocked out. There are standard closed form pricing formulas for knock options whose knock window extends over the life of the knock. If the knock window extends over part of the life of the option, it must be calculated using a lattice or Monte Carlo. Chooser – Allows the holder to choose whether to enter into one of two possible options on the Expiration Date. Compound – A European option which at maturity delivers another option which characteristics (maturity ,strike, put/call) are determined at trade inception. The underlying is the same. Digital – The pay out is pre-determined at the beginning of the contract and is paid according to whether the spot level is achieved (or not achieved). Forex – Trades where the trade currency and settlement currency different. Lookback – An option whose payoff is dependent on the maximum or the minimum of the asset price achieved during a certain period. Basket – An option may be captured on a basket of equity / equity index. Structured Vanilla – Allows the user to create a vanilla trade using features from Forex, Digital, Asian, Lookback, and Barriers. |
Trade > Equity > Equity Structured Option | ||||||
| Structured Note | Structured Notes are a type of bond where the coupon amount, the redemption amount, or both, are contingent upon an underlying equity structured option based on an equity, an equity index, or a basket. | Trade > Equity > Structured Note | ||||||
| Exotic Note | An Exotic Note is a position based product with a Pricing Script as the only payoff. | Trade > Equity > Exotic Note |
Deal Capture Only
For the following products, support includes capture of trade properties and cashflow generation - No native pricing is available - There is no risk computation.
| Product Name | Definition | Trade Worksheet |
|---|---|---|
| Warrant Certificate |
The right to buy an underlying security at a certain price, quantity and future time. A certificate is issued by the issuer of the underlying security or a third party. |
Trade > Equity > Warrant/Certificate |
|
Warrant Certificate Issuance |
Issuance of a certificate. |
Trade > Equity > Warrant/Certificate Issuance |
| Variance Option | An Option on Realized Variance is a Put or Call on the “Realized Variance” over some time period. The Maturity Date of the Option is aligned with the End Date of the Variance period since the final payoff is known at that time. The Variance Option can be price weighted and have conditions. | Trade > Equity > Variance Option |
Pricing
Please refer to Calypso Analytics Library (Calib) documentation for details.
How are we doing?