Capturing FX Option Trades

Before capturing FX Option trades in the Pricing Sheet, the following market data items are required:

•

Spot rate

•

Vol surface

•

Two interest curves, or, one interest curve + one FX Fwd curve

To capture an FX Option trade in the Pricing Sheet, select an FX Option strategy and set the properties as needed. You can also select a strategy template to populate default values.

Sample Strategy and Template selection

The following categories of properties are common to all types of strategies:

•

Trade properties

•

Product Amount properties

•

Market Data properties

•

Solver properties

•

Dealt Data properties

•

Keyword properties

•

Pricer properties

See Strategy Properties for details.

Properties specific to FX Options are described below.

Contents

- Compound Strategies

- Digital Strategies

- Forward Starting Strategies

- Lookback Strategies

- Volatility Forward Strategies

- FX Target Redemption Forwards

- Inverting Quanto and Flexo Settled Strategies

- Volatility and Variance Swaps Strategies

- Volatility and Variance Options Strategies

1. Vanilla Strategies

This also applies to Butterfly, Condor, Reversal, Spread, Straddle, and Strangle strategies.

Properties

Product Type - Constants - Ccy Pair - Notional Ccy - Settle Ccy - Quanto Ccy Pair - Quanto Factor - Buy/Sell - Put/Call - Ccy2 Put/Call - Exercise Type - Settle Type - Location - Allocated - Strike - Strike % itmf - Strike Inverse - Settlement Source

Sample Vanilla FX Option

"Trade" Properties

Properties	Description
Customer Pay/Rec	The values available for this property are “Customer Pays” and “Customer Receives.” The value is driven by the sign of the Customer Premium: negative populates “Customer Receives” while positive populates “Customer Pays.” In the case where multiple options with different directions are open in the same pricing sheet, the property helps keeping track of pay and receive obligations with customers.

Properties

Description

Customer Pay/Rec

The values available for this property are “Customer Pays” and “Customer Receives.” The value is driven by the sign of the Customer Premium: negative populates “Customer Receives” while positive populates “Customer Pays.”

In the case where multiple options with different directions are open in the same pricing sheet, the property helps keeping track of pay and receive obligations with customers.

"Product: Style" Properties

Properties

Description

Product Type

Displays the product type based on the selected strategy.

Constants

Displays any value used in solving that is entered manually like Strike, etc.

Ccy Pair

Displays the default currency pair if any. The default currency pair is set in Configuration > User Preferences.

You can select another currency pair as needed.

Notional Ccy

Select the currency of the notional. In a Digital or Digital with Barrier, Notional Ccy = Settle Ccy.

Settle Ccy

Select the settlement currency for cash trades and self-quanto trades:

•

Primary Currency - Asset-or-Nothing - For a cash settlement, the trade becomes a quanto trade, and you can enter the quanto factor.

•

Secondary Currency - Cash-or-Nothing.

Quanto Ccy Pair

Only applies to "Self Quanto" or "Quanto" set as a Settle Type.

Displays the currency pair used in the Quanto. This is Settlement Ccy/Secondary Ccy in the defined currency pair. The currency pair is defined in the Calypso Navigator under Configuration > Definitions > Currency Definitions....

Quanto Factor

Only applies to "Self Quanto" or "Quanto" set as a Settle Type. Not available with Digital and Digital with Barrier strategies.

Enter the rate between the quoting currency and the primary currency if the settlement currency is the primary currency.

You can enter "k" to populate it with the strike rate, "s" for spot rate, or enter a fixed rate. The trade keyword "QuantoSource" will be populated accordingly.

Flexo FX Source

Only applies to the "Flexo" Settle Type.

Choose the FX rate source for Flexo type trades.

Buy/Sell

Select the direction of the trade: Buy or Sell.

Put/Call

Enter / displays the option direction for the primary currency.

Ccy2 Put/Call

Displays / enter the option direction for the quoting currency.

Exercise Type

Select the exercise type:

•

European (default value) - The option may only be exercised on the expiry date.

•

American - You can exercise the option anytime during the life of the option.

Settle Type

Select the settlement type at exercise. The application may automatically select it based on the product type.

•

Physical - For physical settlement (exercise against the underlying product) - A trade on the underlying product is automatically created. FX points are calculated to the payment date.

•

Physical NDF - For physical settlement into an NDF product. FX points are calculated to the valdate of the fixing date of the related NDF

•

Cash - For cash settlement (exercise against a fee).

•

Self Quanto - For cash settlement in primary currency, with a fixed conversion factor (quanto factor). Only available for Vanilla, Barrier, Barrier with Digital, and Forward Start strategies.

•

Quanto - For the settlement currency in a third currency type, with a fixed conversion factor (quanto factor). Only available for Vanilla, Barrier, Barrier with Digital, and Forward Start strategies.

•

Flexo - For a settlement currency in a third currency type with a configure FX Rate source. Only available for Vanilla, Barrier and Forward Start strategies.

Location

Select the location for commodities.

Allocated

Refers to physical Precious Metal trades. Displays allocated/unallocated metal status. This field has no connection to the ALLOCATE trade status.

"Product: Rate" Properties

Properties

Description

Strike

Enter the strike.

The following FX Delta shortcuts are also available. Add the shortcut to the Strike property field and press Enter.

•

You can enter "atm" to solve for an at-the-money forward. This gives the at-the-money strike for the given currency pair and tenor. The premium in Delta convention and the Delta-neutral-or-atm-forward convention are taken from the vol surface. This is the most commonly used shortcut because it produces the "at-the-money" strike whether it's Delta neutral or ATMF.

•

You can enter "atms" to solve for an at-the-money spot. This gives the strike equal to the current spot rate.

•

You can enter "atmf" to get the strike equal to the current outright forward.

•

You can enter "dn" to set the strike to the ATM delta neutral strike generated from the supplied vol surface and expiry date.

•

You can use the strike to solve for a Delta by entering "<delta value>d", for example "25d".

•

When "<delta value>s" is entered (e.g., 10s), this gives the 25-spot-delta strike, with premium-in-delta coming from the vol surface.

•

When "<delta value>f" is entered (e.g., 10f), this gives the 25-forward-delta strike, with premium-in-delta coming from the vol surface.

•

One percentage strike shortcut: "<delta value>%s" gives the strike equal to spot plus <delta value>%. Also, "-<delta value>%s" gives the strike equal to spot minus <delta value>%.

Rounding

Any system generated strike (solver, shortcut entry) will respect the currency pair rounding settings. If the user manually enters a strike, it will only be rounded based on the constraints of the currency rounding of the amounts that the strike generates.

Example: Ccy1 amount is 10,000.00 and a strike is entered as 1.234567.

•

If ccy rounding of Ccy2 is 2dp then Ccy2 amount would be 12345.67. The strike does not need to be rounded.

•

If ccy rounding of Ccy2 is 0dp (JPY for example) then Ccy2 amount would be 12346 and the strike would need to be rounded to 1.2346.

The shortcut used will not be persisted if the trade is saved. EX: Entering "atms" in this field will calculate the at-the-money-strike and will appear as "<strike value> [atms] when pricing. If the trade is saved, the value is saved, but the shortcut used will not be saved.

Strike % itmf

Displays the percentage of strike with respect to "in-the-money" forward: [(FX Fwd - Strike)/ FX Fwd]*100.

Strike Inverse

Displays 1/Strike for an inverted trade.

Settlement Source

Select an FX Rate Definition to fix the FX rates for cash settled trades. FX Rate Definitions are configured from the Calypso Navigator using Configuration > Foreign Exchange > FX Rate Definitions.

Reset Date

Only applies to Physical NDF settle type.

Displays "Delivery Date - Number of lag days defined in the FX Rate Definition".

It is based on the FX Rate Definition selected in Settlement Source.

You can modify as needed.

"Date" Properties

Properties

Description

Trade FX Date

Displays the trade date adjusted by the 5pm rule if set.

Trade Date

Displays the valuation date set in the Pricing window of the pricing sheet by default.

You can modify as needed.

See Using the Pricing Sheet for details.

Trade Time

Displays the valuation time set in the Pricing window of the pricing sheet.

You can modify as needed.

See Using the Pricing Sheet for details.

Expiry Date

Enter the expiration date.

You can enter a relative term for the option expiration, for example, “1m” for one month.

The Trade Term property will be updated accordingly.

Ⓘ [NOTE: The expiration date takes into account "local" holiday calendars defined in the Defaults panel under Configuration > User Preferences]

Expiry

Displays expiration date details.

Expiry Cut

Displays the default expiry timezone. The default expiry timezone is set in the Defaults panel under Configuration > User Preferences.

Expiry Delivery Link

Select one of four options in the list:

•

On - Links the delivery date to the expiration date using the default set for the currency pair, so that when one is updated, the other one is updated accordingly.

•

Off - The delivery date and expiration are independent of each other.

•

Equal - The delivery date and expiration date are made to equal each other.

•

T+1 - The delivery date follows one day after the expiry date.

Delivery Date

Displays the delivery date of the option. You can modify as needed.

Delivery

Displays details on the delivery date.

Trade Term

Displays the expiry date as a tenor.

First Exercise Date

Enter the first date the option can be exercise for American options.

"Price" Properties

Properties

Description

Premium Date

Displays the premium payment date. The system uses the spot date by default. You can change this to a forward date. If you use a forward date, the application adjusts the premium amount using the discount curve from the selected pricing environment.

Pricing Model

Select the pricer used to price the trade. It defaults to the pricer set in the pricer configuration.

You can also specify pricing parameters associated with the selected pricing model.

Sample pricing parameters

Click here for a description of all pricing parameters.

Pricer Override

The Pricer Override allows overriding the default pricer coming from the pricer configuration in a persistent fashion. This trade will always be priced using the new pricer.

You can select a pricer-override key provided you have created override keys in the Pricer Configuration.

Market Data Item Override

The Market Data Item Override allows overriding the default market data coming from the pricer configuration in a persistent fashion. This trade will always be priced using the new market data.

You can select a market data-override key provided you have created override keys in the Pricer Configuration.

Price Format

Select the currency and unit amount of the prices.

The unit amount defaults to the price format specified under Configuration > User Preferences.

You can select:

•

Percentage of the primary amount "<primary currency> %" - For example "EUR %".

Premium primary % = (premium amount / primary amount) * 100.

•

Pips of the primary amount "<primary currency> Pips" - For example "EUR Pips".

Premium primary pips = (premium amount / quoting amount) * bp factor.

•

Percentage of the quoting amount "<quoting currency> %" - For example "USD %".

Premium quoting % = (premium amount / quoting amount) * 100.

•

Pips of the quoting amount "<quoting currency> Pips" - For example "USD Pips".

Premium quoting pips = (premium amount / primary amount) * bp factor.

2. Broker Butterfly and Broker Strangle Strategies

"Broker" strategies are quoted with the same volatility on all legs, giving them different strikes for a given delta. The behavior of the Volatility and Strike properties is different from standard Butterfly and Strangle strategies.

A single, linked volatility is entered in these strategies.

Sample Broker Strangle trade

A Broker Butterfly is a Broker Straddle with a delta neutral straddle.

3. Accrual Strategies

Ⓘ [NOTE: Quanto pricing for Accrual strategies is not currently supported]

Properties

Vanilla properties - Range Style - Observation Source - Reset Source - Known 1st Range - Reset Effective Date - Trigger properties

Sample Accrual FX Option

"Product" Style" Properties

Properties

Description

Observation Type

For Accrual and Accumulator options, the choices are:

•

Cash Accrual

•

FX Accrual

•

Vanilla Fade In - Each time the spot condition is met on a fixing date, a portion of the notional is paid. That is, on expiry date the notional is: "n/N" x "notional amount".

•

Vanilla Fade Out - Each time the spot condition is met on a fixing date, a portion of the notional is deducted from the maximum that can be used. That is, on expiry date the notional is: "notional amount" - ("n/N" x "notional amount").

Where:

•

"notional amount" is the notional amount

•

n is how many times the spot satisfies the predefined condition (whether it is meant to be above/below a predetermined trigger, or inside/outside a predetermined range) on the predefined fixing dates

•

N is the number of fixings dates over the life of the option

Range Style

Select Single for single range, or Multiple for multiple ranges.

•

For Single range, you can capture the range in the Trigger properties.

•

For Multiple range, right-click the trade and choose "Supplemental" to define the ranges.

See Setting Accrual Details for details.

Known 1st Range

Select Yes if the first range is known for a resetting range, or No otherwise.

If Yes, you can specify the first range in Trigger and Trigger2.

"Product: Rate" Properties

Properties

Description

Observation Source

Select an FX Rate Definition to fix the FX rates. FX Rate Definitions are configured from the Calypso Navigator using Configuration > Foreign Exchange > FX Rate Definitions.

Then right-click the FX Rate Definition and choose "Supplemental" to define the accrual details.

See Setting Accrual Details for details.

Reset Source

Select "Not resetting" for non-resetting ranges, or select the FX Rate Definition that will be used to fix the rates. FX Rate Definitions are configured from the Calypso Navigator using Configuration > Foreign Exchange > FX Rate Definitions.

Then right-click the FX Rate Definition and choose "Supplemental" to define the fixing schedule.

See Setting Accrual Details for details.

"Date" Properties

Properties	Description
Reset Effective Date	Enter the date at which the strike will be known.

"Trade" Properties

Properties	Description
Breakeven FX Rate	Informs the trader or customer from which point the option begins to make profit, or, on the other side, from which point the option starts to lose money. It gives an indication of how far the option is from that point compare to market conditions.

3.1 Setting Accrual Details

To define observation schedules, reset schedules, and ranges for Accrual options, right-click the trade and choose "Supplemental". Define the schedules as needed then click Save and Close to apply the details to the trade.

Observation Schedule

Accrual Configuration (Observation schedule)

The observation source (FX Rate Definition), start date, and end date default to the option's details.

Step 1 - Select the frequency, date roll convention, and holidays.

Select the Accrual Method: Daily or Unweighted (discrete accrual on each observation date).

For Daily, you can include weekends or not, and include holidays or not. If you include weekends and holidays, the precedent business day's rate will be used.

Step 2 - Click Generate to generate the schedule.

You can click the "Clear All" menu to add / remove observation dates.

Reset Schedule

Ⓘ [NOTE: The Reset Schedule panel only appears if the ranges are resetting ("Reset Source" property contains an FX Rate Definition)]

Accrual Configuration (Reset schedule)

The fixing source (FX Rate Definition) defaults to the option's details.

Step 1 - Set the reset lag (number of days between reset date and effective date), frequency, date roll convention, holidays, and first and last effective dates.

Step 2 - Click Generate to generate the schedule.

You can click the "Clear All" menu to add / remove observation dates.

Fixed Ranges

Accrual Configuration (Fixed ranges)

For a single range, you can only specify one range, for a multi-range, you can add multiple ranges.

Single Range - Select the range and click Edit.

Select the range type: IN, OUT, ABOVE, or BELOW.

Enter the lower value of the range, the upper value of the range, the strike, and a leverage as needed (factor to increase / decrease the notional).

Multi-Range - Click Add and define the range - The information is the same as for a single range.

You can check "Allow overlapping ranges" to define ranges that are included in one another. By defining only two ranges, you can actually define three levels.

Repeat as needed for other ranges.

Resetting Ranges

Accrual Configuration (Resetting Ranges)

For a single range, you can only specify one range, for a multi-range, you can add multiple ranges.

Single Range - Select the range and click Edit.

Select the range type: IN, OUT, ABOVE, or BELOW.

Enter the lower spread, the upper spread, and a leverage as needed (factor to increase / decrease the notional).

Multi-Range - Click Add and define the range - The information is the same as for a single range.

You can check "Allow overlapping ranges" to define ranges that are included in one another. By defining only two ranges, you can actually define three levels.

Repeat as needed for other ranges.

Summary

The summary panel shows a report of the range observation.

4. Asian Strategies

Ⓘ [NOTE: Quanto pricing for Asian strategies is not currently supported]

Properties

Vanilla properties - Fixings - Observation Source - Observation Type

Sample Asian FX Option

"Product: Style" Properties

Properties

Descripition

Observation Type

The choices are:

•

Average Rate — The average of the fixings determines the average rate. The settlement is the difference between the average rate and the strike multiplied by the primary amount in the trade.

•

Average Strike — The average of the fixings determines the average strike. The settlement is the difference between the spot rate and the average strike multiplied by the primary amount in the trade.

•

Geom Avg Rate — The system calculates the geometric average of all the fixings and compares it with the strike. The settlement is the difference between the geometric average rate and the strike multiplied by the primary amount in the trade.

•

Geom Average Strike — The system calculates the strike from the geometric average of all the fixings. The settlement is the difference between the spot rate and the geometric average strike multiplied by the primary amount in the trade.

•

DARO - Double average rate option, the average is computed for both the rate and the strike.

•

Geom DARO - Geometric double average rate option, the geometric average is computed for both the rate and the strike.

"Product: Rate" Properties

Properties

Description

Observation Source

Select an FX Rate Definition to fix the FX rates. FX Rate Definitions are configured from the Calypso Navigator using Configuration > Foreign Exchange > FX Rate Definitions.

Then right-click the FX Rate Definition and choose "Supplemental" to define the fixing schedule.

See Setting an Asian Observation Schedule for details.

"Date" Properties

Properties

Description

Fixings

Displays the number of fixings for averaging the rate or strike.

You can also view the following properties:

•

Schedule Start Date

•

Schedule End Date

•

Schedule 2 Start Date

•

Schedule 2 End Date

4.1 Setting an Asian Observation Schedule

Right-click the FX Rate Definition and choose "Supplemental" to define the fixing schedule. Click Save and Close when you are done.

Fixing Schedule (Asian options)

The start and end dates default to the option's details.

Step 1 - Select the frequency. For the weekly frequency, you can check the Roll Day checkbox, and select the day from the adjacent field. For other frequencies, your can check the “Roll On End Date” checkbox to roll on the last day of the period.

Select holidays as needed.

You can check the Adjusted checkbox to adjust the sample dates for holidays based on the selected holiday calendars.

You can check the Weighted checkbox to adjust the weights for holidays based on the selected holiday calendars.

Step 2 - Click Generate to generate the schedule.

The FX rates are set from the Calypso Navigator using Trade Lifecycle > Reset > FX Rate Reset. They are saved as quote values for the quote value name of the FX Rate Definition.

You can also enter the reset values from the Calypso Navigator using Market Data > Market Quotes > Quotes for the quote value name of the FX Rate Definition.

The quote value name of the FX Rate Definition is of the form “FX.<primary currency>.<quoting currency>.<FX Rate Definition name>.<FX Rate Definition source>” - For example “FX.EUR.USD.EUR/USD_ECB.ECB”.

You can add and remove dates in the schedule. In this case the "Custom Samples" checkbox will appear checked.

Step 3 - You can modify the weights as needed. The weights are applied to the values when calculating an average rate value, or an average strike value.

The Current Value field displays the actual value of the average rate based on the averaging type and existing resets.

Step 4 - Click Save and Close when you are done.

5. Barrier Strategies

This also applies to Window Barrier strategies.

Properties

Vanilla Strategies properties- Barrier properties

Sample Barrier FX Option

"Barrier" Properties

"Barrier" properties apply to Barrier, Window Barrier, Digital with Barrier FX options.

Properties

Description

Barrier Duration

Select the duration type:

•

EXPIRY - The barrier is only observed on the expiry date. You can define multiple volatilities. The VOLATILITY1 and VOLATILITY2 pricing parameters correspond to the volatilities for the upper and lower barriers. Enter the volatility for the barrier if desired. Otherwise, the pricer uses the volatility from the surface if you do not specify one in the pricing parameters. To use the same volatility as the strike, manually enter that value in the pricing parameters.

•

FULL - The barrier is observed throughout the life of the option. The start date of the observation is the trade date; the end date of the observation is the expiry date.

•

PARTIAL - Enter the start and end dates for the observation, which can be less than the life of the option. Enter values for Barrier/Barrier2 Start and Barrier/Barrier2 End dates.

•

MULTI_PERIOD - The barrier is observed over multiple periods. With MULTI_PERIOD selected, right-click the barrier trade and choose "Supplemental" from the pop-up menu.

See Configuring Multiple Barriers for details.

Barrier Description

Displays the description of the barrier type.

Barrier Type

Select the type of barrier:

•

UI - Up In

•

DI - Down In

•

UO - Up Out

•

DO - Down Out

•

DKI – Up In Down In

•

DKO - Up Out Down Out

•

KIKO (UI) – KIKO Up In Down Out - Knock into a UI barrier option

•

KIKO (DI) - KIKO Up Out Down In - Knock into a DI barrier option

•

UIDO (Up In or Down Out) - After Knock_In (Up In) Barrier is Traversed, FXO Vanilla Option is created. If the knock-out barrier is traversed at any time, then there ceases to be an option.

•

UODI (Up Out or Down In) - After Knock_In (Down In) Barrier is Traversed, FXO Vanilla Option is created. If the knock-out barrier is traversed at any time, then there ceases to be an option.

Barrier

Strike rate for the single barrier, or upper barrier for a double barrier.

Barrier Start Date

For a partial barrier: the start date of the barrier observation.

You can also set the Barrier Start Time.

Barrier End Date

For a partial barrier: the end date of the barrier observation.

You can also set the Barrier End Time.

Barrier2

Strike rate for the lower barrier.

Barrier2 Start Date

For a partial double barrier: the start date of the second barrier observation.

You can also enter the Barrier2 Start Date.

Barrier2 End Date

For a partial double barrier: the end date of the second barrier observation.

You can also set the Barrier2 End Time.

Rebate

Enter a rebate amount if applicable.

You can also set the following properties:

•

Rebate Ccy - Select the currency for the rebate.

–

Primary Currency — Asset-or-Nothing

–

Secondary Currency — Cash-or-Nothing

•

Rebate Timing - Select Expiry (rebate at expiration), or INSTANT (rebate when the barrier is hit).

5.1 Configuring Multiple Barriers

When the Barrier Duration property is set to MULTI_PERIOD, you can right-click anywhere in a barrier trade and choose "Supplemental" from the pop-up menu to open the Multiple Barrier Configuration panel.

Right-click in Barrier trade leg

Periods in which an observation occurs in the schedule are referred to as stages. Barriers define the specific window of observation of each stage and can be manipulated to customize the terms of the observation.

There are two methods for creating multiple stage barriers on the Multiple Barrier Configuration panel. The first is accomplished on the Barrier Schedule tab and lets you parametrically generate the duration of the stages in the schedule by frequency, such as weekly or bi-weekly. The second method is accomplished on the Barrier Definition tab and allows you to manually set the number and duration of the barriers, and apply unique definitions to each.

Notice that when you select MULTI_PERIOD in the trade leg, property settings such as Barrier , Barrier Type, barrier start and end dates, and Rebate are shifted to the Multiple Barrier Configuration panel. All barrier types are available except for KIKO options.

Follow the basic steps below for creating multi-period barriers.

TIP: If you create an observation schedule on the Barrier Schedule tab, you can make refinements and/or add stages to it on the Barrier Definition tab. To edit a specific barrier, highlight that barrier's row in the schedule and use the Barrier parameters to make changes.

Barrier Schedule Tab

Example observation schedule generated on the Barrier Schedule tab.

Step 1 - Set Stages and Barriers parameters on the Barrier Schedule tab to generate the observation schedule.

•

The Frequency determines the period of time for each stage, such as daily, weekly, bi-weekly, monthly, or quarterly.

•

The [Barriers] Type drop-down list provides the same barrier types as those described in Barrier properties with the exception of KIKO options.

•

For Observation, you can select SPOT or an FX Rate Definition (discrete observation).

•

For the Start/End Time, you can select "Default" to observe the barrier over the whole day, or "Custom" to observe the barrier within a specific frame of time during the day. In the latter case, you can set the Start Time and the End Time.

•

For the Duration, you can choose "Full" (each observation window has the same length based on the frequency), "Window at Start" (the observation window starts at the beginning of the stage, and Window Length determines its duration), "Window at End" (the observation window ends at the End Date of the stage and Window Length determines its duration), or Custom (each window has a user-defined length with possible offset).

•

Set the barrier level. You can also include an increment for defining progressive changes in the level from stage to stage.

•

You can set rebate details for "out" barrier types.

Step 2 - Click Generate to generate the observation schedule. To make further edits, use the Barrier Definition tab. See details below for this tab.

Step 3 - Click Save and Close when you are satisfied with the schedule.

Barrier Definition Tab

Example observation schedule created manually on the Barrier Definition tab.

Ⓘ [NOTE: When you first open the Multiple Barrier Configuration panel and click the Barrier Definition tab, the system has generated the first stage including a start and end date based on the present day and Expiry Date, if one was entered on the Barrier trade leg. To begin manually adding stages, highlight the stage's row in the schedule, enter the Stage and Barrier parameters, and click Apply to override the autopopulated settings in Stage 1. (The Apply button is used for executing edits made to already existing stages.) Alternatively, you can simply highlight the first stage, delete it, and add a new first stage. See details below.]

Step 1 - Click New to initiate a new stage. Stage and Barrier parameters are reset to default.

Step 2 - Configure Stage parameters.

•

The Barrier Type(s) drop-down list provides the same barrier types as those described in Barrier properties with the exception of KIKO options.

•

For the Observation, you can select SPOT or an FX Rate Definition (discrete observation).

•

Define the Start Date and End Date for the given stage.

Ⓘ [NOTE: Start and end dates can be for any period of time provided the stage does not overlap with a previous or subsequent stage.]

•

Configure Barrier parameters

•

For the Duration, you can choose "Full" (the barrier's observation window shares the same period as the stage), "Window at Start" (the observation window starts at the beginning of the stage, and Window Length determines its duration), "Window at End" (the observation window ends at the End Date of the stage and Window Length determines its duration), or Custom (each window has a user-defined length with possible offset).

Ⓘ [NOTE: When Custom, Window at Start, or Window at End is selected, the barrier's start and end must fall within the constraints of the stage's Start Date and End Date. Also, the Window Length parameter must not exceed the stage's period.]

•

Set the Level for the barrier.

•

You can set rebate details for "out" barrier types.

•

Step 3 - When you have finished configuring the stage, click Add. The stage is added to the observation schedule. To add further stages, repeat from Step 1.

Step 4 - If you need to make any changes to an already existing barrier, first highlight the barrier's row in the schedule and make changes to the parameters. Once the edits are made, click Apply to execute the changes. To delete a stage, highlight it in the schedule and click Delete.

Step 5 - Click Save and Close when you are satisfied with the schedule.

6. Compound Strategies

Properties

Vanilla properties - Compound Term - Compound Expiry Date - Compound Expiry - Compound Delivery Date - Compound Delivery - Compound Expiry Cut - Compound Put/Call - Compound Strike - Compound Strike Amount

Sample Compound FX Option

"Product: Style" Properties

Properties	Description
Compound Put/Call	Select the direction of the compound option for the primary currency.

"Product: Rate" Properties

Properties

Description

Compound Strike

Enter/displays the price of the underlying option as a percentage of the underlying primary amount.

Compound Strike Amount

Compound Strike Amount = Compound Strike * Ccy 1 Amount / 100.

You can also enter a compound strike amount and the Compound Strike will be updated accordingly.

When exercising the compound option, the compound strike amount will be passed to the created plain vanilla as PREMIUM fee.

"Date" Properties

Properties	Description
Compound Expiry Date	Enter the expiry date of the compound option.
Compound Expiry	Displays details about the "Compound Expiry Date".
Compound Expiry cut	Displays the default expiry timezone for the compound option. The default expiry timezone is set in the Defaults panel under Configuration > User Preferences.
Compound Term	Displays the "Compound Expiry Date" as a tenor.
Compound Delivery Date	Enter the delivery date of the compound option.
Compound Delivery	Displays details about the "Compound Delivery Date".

7. Digital Strategies

This also applies to Digital with Barrier strategies.

Properties

Vanilla properties (no strike) - Trigger properties - Observation Source

Sample Digital FX Option

"Product: Rate" Properties

Properties	Description
Observation Source	Select an FX Rate Definition to fix the FX rates. FX Rate Definitions are configured from the Calypso Navigator using Configuration > Foreign Exchange > FX Rate Definitions.

"Trigger" Properties

"Trigger" properties apply to Accrual, Accumulator, Range Accrual, Digital, Window Digital, European Binary FX options.

Properties

Description

Trigger Duration

Select the duration type:

•

EXPIRY — The trigger is only observed on the expiry date. You can define multiple volatilities. The VOLATILITY1 and VOLATILITY2 pricing parameters correspond to the volatilities for the upper and lower triggers. Enter the volatility for the digital if desired. Otherwise, the pricer uses the volatility from the surface if you do not specify one in the pricing parameter. To use the same volatility as the strike, manually enter that value in the pricing parameter(s).

•

FULL — The trigger is observed throughout the life of the option. The start date of the observation is the trade date; the end date of the observation is the expiry date.

•

PARTIAL — Enter the start and end dates for the observation, which can be less than the life of the option. Enter values for Trigger/Trigger2 Start and Trigger/Trigger2 End dates.

Trigger Description

Displays the description of the trigger type.

Trigger Type

Select the trigger type.

For Digital options, the choices are:

•

OT UP - One Touch Up

•

OT DN - One Touch Down

•

NT UP - No Touch Up

•

NT DN - No Touch Down

•

DOT - Double One Touch

•

DNT - Double No Touch

•

OTNT (UI) - One Touch No Touch UI

•

OTNT (DI) - One Touch No Touch DI

For Digital at Expiry, the choices are:

•

ABOVE – Payout occurs if spot rate above the trigger level

•

BELOW – Payout occurs if spot rate below the trigger level

•

IN – Payout occurs if the spot rate within the two trigger levels

•

OUT – Payout occurs if the spot rate outside the two trigger levels

For Digital With Barrier options, the choices are ABOVE or BELOW.

For Accrual options and Accumulator options, the choices are:

•

ABOVE - Payout occurs when the spot rate is above the trigger.

•

BELOW - Payout occurs when the spot rate is below the trigger.

•

IN - Payout occurs when the spot rate is within in the trigger range.

•

OUT - Payout occurs when the spot rate is out of the trigger range.

Payout Type

Select Instant (payout when the trigger is hit) or Expiry (payout at expiration).

Trigger

Digital an European Binary options:

Enter the strike rate for the single trigger, or upper trigger for a double digital.

Accrual and Accumulator options:

Enter the trigger for ABOVE and LOW options, or low trigger for a range.

Trigger Start Date

Enter the start date of observation for a partial digital.

Trigger End Date

Enter the end date of observation for a partial digital.

Trigger Spread

In case of resetting range, enter the upper spread for single range.

Trigger Included

Accrual options:

For ABOVE and BELOW accruals, select Yes to monitor the trigger, or No otherwise.

Range Accruals:

Select Yes to monitor the upper value of the range, or No otherwise.

Trigger2

Digital and European Binary options:

Enter the strike rate for the lower trigger.

Accrual options and Accumulator options:

Enter the high trigger for a range.

Trigger2 Start Date

Enter the start date of second trigger observation for a double partial digital.

Trigger2 End Date

Enter the end date of second trigger observation for a double partial digital.

Trigger2 Spread

In case of resetting range, enter the lower spread for single range.

Trigger2 Included

Range Accruals:

Select Yes to monitor the lower value of the range, or No otherwise.

8. Forward Starting Strategies

Properties

Vanilla properties - Reset Source - Reset Effective Date - Formula Strike

Sample Forward Starting FX Option

"Product: Rate" Properties

Properties

Description

Strike

You can enter the strike as a percentage of the "at-the-money" forward like "102% atmf", as an "in-the-money" spot like "atms", as a percentage of "out-the-money" like "10%otm", or as rate +/- pips like "2 pips".

Entry shortcuts can be used for the strike:

"o" for %OTM i.e. entering "10o" displays as 10%OTM.

"f" for atmf i.e. entering "90f" displays as 90%atmf.

"s" for atms i.e. entering "85s" displays 85%atms.

"p" for pips i.e. entering "-10p" displays -10 pips.

An option trade can be inverted (strike inverted). For percentage strikes, the strike is 1/original strike. For pip strikes, the strike is converted to percentage strike, and then inverted as 1/strike. This is then reconverted to a pip strike to display.

Rounding

Example: Ccy1 amount is 10,000.00 and a strike is entered as 1.234567.

•

If ccy rounding of Ccy2 is 2dp then Ccy2 amount would be 12345.67. The strike does not need to be rounded.

Formula Strike

Displays the formula captured in the Strike property.

"Product: Style" Properties

Properties	Description
Reset Source	Select the FX Rate Definition that will be used to fix the strike. FX Rate Definitions are configured from the Calypso Navigator using Configuration > Foreign Exchange > FX Rate Definitions.

If ccy rounding of Ccy2 is 0dp (JPY for example) then Ccy2 amount would be 12346 and the strike would need to be rounded to 1.2346.

"Date" Properties

Properties	Description
Reset Effective Date	Enter the date at which the strike will be known.

9. Lookback Strategies

Properties

Vanilla properties - Observation Source - Fixings - Observation Type

Sample Lookback FX Option

"Product: Style" Properties

Properties

Description

Observation Type

The choices are:

•

Lookback Rate - Enter a strike in the Strike field. Call pays the maximum of the rate during the option life, minus the strike; put pays the strike minus the minimum rate during the option life.

•

Lookback Strike - No strike price is required; the rate is the rate at expiry. Call pays the rate at expiry minus the minimum of the rate during the option life; put pays the maximum rate during the option life, minus the rate at expiry.

"Product: Rate" Properties

Properties	Description
Observation Source	Select an FX Rate Definition to fix the FX rates. FX Rate Definitions are configured from the Calypso Navigator using Configuration > Foreign Exchange > FX Rate Definitions.

"Date" Properties

Properties

Description

Fixings

Displays the number of fixings.

The following properties are also displayed:

•

Schedule Start Date

•

Schedule End Date

•

Schedule 2 Start Date

•

Schedule 2 End Date

10. Volatility Forward Strategies

The Volatility Forward strategy supports both cash and physical settlement. When a physical-delivery Volatility Forward strategy is exercised, it creates an ATM delta-neutral straddle trade.

Properties

Vanilla properties (no strike) - Agreed Forward Volatility - VF Vol at Trade Expiry - VF Vol at Straddle Expiry - VF Implied Forward Vol – Vega - VF Straddle Expiry Date - VF Straddle Term - VF Straddle Cut

"Product: Rate" Properties

Properties	Description
Vega	Displays what the Vega would be in a Vanilla option from the trade date to the number of days calculated from the difference of the Expiry Date and the Fixing Date of the Volatility Forward option.
VF Vol at Trade Expiry	Displays the volatility at trade expiration (from the market data).
VF Vol at Straddle Expiry	Displays the volatility at underlying expiration (from the market data).
VF Implied Forward Vol	Displays the implied forward volatility.
Agreed Forward Volatility	Enter the forward volatility agreed to on the trade date. The price that is agreed upon to buy the ATM straddle. It defaults to the calculated implied forward volatility. However, you can modify the value.

"Date" Properties

Properties	Description
VF Straddle Expiry Date	Enter the expiration date of the underlying option (straddle).
VF Straddle Term	Displays the "VF Straddle Expiry Date" as a tenor.
VF Straddle Cut	Select the expiry timezone for the expiration date of the underlying option (straddle). Expiry timezones are created from the Calypso Navigator using Configuration > Definitions > Expiry Time Zone.

11. FX Target Redemption Forwards

Target Redemption Forwards (TARF) are options composed of a strip of FX Forwards with a knockout on the entire structure based on the accrued profit for the structure purchaser.

The FX TARF strategy must be created as a custom strategy using Configuration > Strategy Builder.

11.1 Defining the FX TARF Strategy

Choose Configuration > Strategy Builder an select the strategy "Script > Pricing Script".

Select the Pricing Script payout corresponding to the FX TARF, and complete the strategy definition as needed.

Please refer to Calypso Pricing Script documentation for information on defining pricing scripts.

Save the custom strategy and give it a name.

Make sure that you add the new strategy to the user profile.

11.2 Using the FX TARF Strategy

Open a Pricing Sheet and select the custom strategy that you have created.

Each forward uses a fixing source. If the forward is at-the-money at the fixing time, the accrued interest is added to a counter. When the counter reaches the knockout level, the entire structure knocks out. The final payment may or may not be paid.

Sample FX TARF trade

"Product" Properties

Properties	Description
Ccy Pair	Displays the currency pair used in the trade.
Buy/Sell	Select the trade direction.
Notional	Enter the trade notional.
Notional Ccy	Displays the notional currency used in the trade.
Observation Source	Select the observation source for FX underlying.
Model Premium	Displays the model premium in notional currency.
Underlying	The underlying of an FX TARF is a currency pair. Displayed based on the selected currency pair.

"Product: Accrual" Properties

Properties

Description

Accrual Schedule

Displays the accrual schedule dates and methods used. You can enter values for:

•

Start Date

•

End Date

•

Frequency

•

Payment Holidays

•

Date Roll

•

Payment Rule

•

Date Rule

•

Specify Roll

•

Roll Day

•

Payment Lag

•

Reset Lag

•

Reset Holidays

•

Bus. Day Lag

•

Stub Rule

•

Rounding

•

Include Start

•

Quote Usage

•

Manual Schedule - check and click the ... button to manually define a schedule and apply it.

"Product: Type" Properties

Properties

Description

Payout

Displays the Pricing Script payout selected in the strategy.

CallPut

"Call" or "Put". Select the direction of the option from the book's perspective.

Cash Residual

Click the checkbox for true, or clear otherwise.

Final Payment Type

Select "Full", "Exact", or "None".

KOLevel

Enter the knock out level.

LeverageRatio

Enter the factor to increase/decrease the notional by.

Strike

Enter the strike.

Rounding

Example: Ccy1 amount is 10,000.00 and a strike is entered as 1.234567.

•

If ccy rounding of Ccy2 is 2dp then Ccy2 amount would be 12345.67. The strike does not need to be rounded.

•

If ccy rounding of Ccy2 is 0dp (JPY for example) then Ccy2 amount would be 12346 and the strike would need to be rounded to 1.2346.

12. Inverting Quanto and Flexo Settled Strategies

A user can invert strategies with a "Quanto" or "Flexo" settle type by selecting the strategy and clicking Tools > Invert > Selected Strategies. An entire sheet can be inverted by clicking Tools > Invert > Sheet.

Inverting a strategy with a "Quanto" settle type will change the following properties:

•

Ccy Attributes

•

Put/Call

•

Strike/Trigger/Barrier Attributes- Value will invert to 1/<Original Value> or vice versa.

EX: An entered strike of 1.25 will invert to 1/1.25 = .08

•

Quanto Ccy Pair/Quanto Factor- The inverted currency and the settle currency. The order of the currencies in the "Pair Pos Ref" defined in the Currency Default window. To set this, click .

•

Trigger Type Attributes

•

Barrier Type Attributes

Inverting a strategy with a "Flexo" settle type will change the following properties:

•

Ccy Attributes

•

Put/Call

•

Strike/Trigger/Barrier Attributes- Value will invert to 1/<Original Value> or vice versa.

EX: An entered strike of 1.25 will invert to 1/1.25 = .08

•

Quanto Currency Pair- The inverted currency and the settle currency. The order of the currencies in the "Pair Pos Ref" defined in the Currency Default window. To set this, click .

•

Flexo Source - The Flexo Source will be the Settlement Source of the new Quanto Currency Pair.

•

Trigger Attributes

•

Barrier Attributes

13. Volatility and Variance Swaps Strategies

FX Volatility Swaps and FX Variance Swaps are agreements between counterparties to swap a fixed rate of FX volatility or variance and a realized rate of FX volatility or variance over a set period of time. This strategy also provides an optional cap.

The key property in this strategy for determining whether the swap measures variance or volatility is "Swap Type." A drop-down list in the property field allows users to select between the two settings. Since variance is the mathematical square of volatility and computed differently, further properties for the Variance Swap also display Variance Strike and Variance Notional, which are editable fields when enabled. See property descriptions below for details.

Ⓘ [NOTE: Selecting the Pricing Model used for the FX Variance/Volatility Swap is integral to market data input and trade capture. For pricer details specific to this strategy, see "FX Options" in the Calypso Analytics and Pricing Environment documentation.]

Key Properties

Buy/Sell - Ccy Pair - Notional - Pricing Model - Swap Type - Observation Source - Vol Reference % - Vol Strike % - Variance Strike

Sample FX Variation Swap with Swap Type "Variance"

Basic Steps for Capturing FX Variance/Volatility Swap Trades

•

Select the trade direction, either buy or sell, and enter a notional value for the trade.

•

Select the Ccy Pair and Observation Source.

•

Select the Swap Type, either Volatility or Variance, and the Pricing Model.

•

Enter a value for Vol Reference %.

•

Enter a value for Vol Strike % if a volatility swap, or Variance Strike if a variance swap.

•

Enter the Settle Type and Expiry Date.

•

Enter other common trade properties, such as Book and Counterparty.

"Trade" Properties

Properties

Description

Swap Type

This setting determines whether the swap is for variance or volatility. When Variance is selected, the Variance Strike, Variance Notional, and Variance Cap properties are enabled.

Expected N

Displays the number of fixings expected during the life of the trade.

Use First Observation

When the checkbox is selected, the trade will use the market fixing rate for the first fixing. When the checkbox is cleared, the trade uses a supplied rate for its first fixing.

Annualization Factor

Enter the number of business days in a year to calculate the annualized volatility. Default is 252.

Conditional Volatility Type

This field allows you to select a condition type to include observations.

•

None – No condition.

•

Upside – You can set a lower return. The observation must be greater or equal to the lower return to be included.

•

Downside – You can set an upper return. The observation must be lower than the upper return to be included.

•

Corridor – You can set a lower return and an upper return. The observation must be within the lower and upper return to be included.

Vol Reference %

The volatility reference is used to compute the vega notional (or volatility exposure). The amount of volatility exposure in currency units per volatility point. VEGA_NOTIONAL = NOTIONAL / 2 * Volatility Reference = 100 000 / 2*27 = 1851,85

Vol Strike %

Enter the volatility strike for the trade. This is the fixed level against which the payout is computed as a percentage.

Volatility Cap %

Enter a cap on the realized volatility.

Variance Strike

Displays the volatility strike squared. Modifying this field re-computes the Volatility Strike %. Variance Strike = (Volatility Strike)^2.

Variance Notional

Displays the notional amount for the variance swap. The payout is linked to this amount. Modify as needed and it will recompute the volatility notional. Variance Notional = Volatility Notional / (2 * Volatility Strike)^

Variance Cap

Enter a cap on the realized variance.

"Style" Properties

Properties	Description
Buy/Sell	Choose the direction of the trade.
Settle Type	Select a settlement type: Cash, Quanto, or Compo.
Ccy Pair	Enter the currency pair used to measure the volatility.
Notional Ccy	Currency of the notional

"Product: Rate" Properties

Properties	Description
Observation Source	Select the FX rate definition used to fix the FX rates.

"Product: Amount" Properties

Properties	Description
Notional	Enter the notional amount for the trade.

"Date" Properties

Properties	Description
Expiry Date	Enter the expiration date of the trade.
Delivery Date	Enter the delivery date of the trade.

"Price" Properties

Properties

Description

Pricing Model

Select the pricer used to price the trade. It defaults to the pricer set in the pricer configuration.

For pricer details on the FX Variance/Volatility Swap, see "FX Options" in the Calypso Analytics and Pricing Environment documentation.

14. Volatility and Variance Options Strategies

FX Volatility and Variance Options are used to capture options on swaps that reference realized FX volatility or variance. They are captured the same way as FX Variance/Volatility Swaps with the addition of the Put/Call property, but have no provision for a cap or conditions on volatility.

Ⓘ [NOTE: Selecting the Pricing Model used for the FX Variance/Volatility Option is integral to market data input and trade capture. For pricer details specific to this strategy, see "FX Options" in the Calypso Analytics and Pricing Environment documentation.]

Key Properties

Buy/Sell - Put/Call - Ccy Pair - Notional - Pricing Model - Swap Type - Observation Source - Vol Reference % - Vol Strike % - Variance Strike

Sample FX Volatility Option with Swap Type "Volatility"

Basic Steps for Capturing FX Variance/Volatility Option Trades

•

Select the trade direction, either buy or sell, and whether the trade is a put or call.

•

Enter a notional value for the trade.

•

Select the Ccy Pair and Observation Source.

•

Select the Swap Type, either Volatility or Variance, and the Pricing Model.

•

Enter a value for Vol Reference %.

•

Enter a value for Vol Strike % if swap type is volatility, or Variance Strike if swap type is variance.

•

Enter the Settle Type and Expiry Date.

•

Enter other common trade properties, such as Book and Counterparty.

"Trade" Properties

Properties	Description
Swap Type	This setting determines whether the swap is for variance or volatility. When Variance is selected, the Variance Strike, Variance Notional, and Variance Cap properties are enabled.
Expected N	Displays the number of fixings expected during the life of the trade.
Use First Observation	When the checkbox is selected, the trade will use the market fixing rate for the first fixing. When the checkbox is cleared, the trade uses a supplied rate for its first fixing.
Annualization Factor	Enter the number of business days in a year to calculate the annualized volatility. Default is 252.
Vol Reference %	The volatility reference is used to compute the vega notional (or volatility exposure). The amount of volatility exposure in currency units per volatility point. VEGA_NOTIONAL = NOTIONAL / 2 * Volatility Reference = 100 000 / 2*27 = 1851,85
Vol Strike %	Enter the volatility strike for the trade. This is the fixed level against which the payout is computed as a percentage.
Variance Strike	Displays the volatility strike squared. Modifying this field re-computes the Volatility Strike %. Variance Strike = (Volatility Strike)^2.
Variance Notional	Displays the notional amount for the variance swap. The payout is linked to this amount. Modify as needed and it will recompute the volatility notional. Variance Notional = Volatility Notional / (2 * Volatility Strike)

"Style" Properties

Properties	Description
Buy/Sell	Choose the direction of the trade.
Put/Call	Select whether the trade is a put or call.
Settle Type	Select a settlement type: Cash, Quanto, or Compo.
Ccy Pair	Enter the currency pair used to measure the volatility.
Notional Ccy	Currency of the notional

"Product: Rate" Properties

Properties	Description
Observation Source	Select the FX rate definition used to fix the FX rates.

"Product: Amount" Properties

Properties	Description
Notional	Enter the notional amount for the trade.

"Date" Properties

Properties	Description
Expiry Date	Enter the expiration date of the trade.
Delivery Date	Enter the delivery date of the trade.

"Price" Properties

Properties

Description

Pricing Model

Select the pricer used to price the trade. It defaults to the pricer set in the pricer configuration.

For pricer details on the FX Variance/Volatility Option, see "FX Options" in the Calypso Analytics and Pricing Environment documentation.