The exchange traded index option market in South Africa has seen tremendous growth during the last couple of years. The biggest liquidity is in options on the near and middle Alsi future contracts. Alsi futures are listed future contracts on the FTSE/JSE Top40 index, the most important and...

Certain exotic options cannot be valued using closed-form solutions or even by numerical methods assuming constant volatility. Many exotics are priced in a local volatility framework. Pricing under local volatility has become a field of extensive research in finance, and various models are...

A cost-effective structure is sought whereby an institution can hedge its balance sheet against adverse market movements. Vanilla puts would suffice but it is generally very expensive if these puts are rolled on a continuous basis. An institution, however, might be willing to pay the intrinsic...

Exposure-at-default (EAD) is one of the most interesting and most difficult parameters to estimate in counterparty credit risk (CCR). Basel I offered only the non-internal Current Exposure Method (CEM) for estimating this quantity whilst Basel II further introduced the Standardised Method (SM)...

A cost-effective structure is sought whereby an institution can hedge its balance sheet against adverse market movements. Vanilla puts would suffice but it is generally very expensive if these puts are rolled on a continuous basis. An institution, however, might be willing to pay the intrinsic...

For internationally oriented firms or individuals that choose to eliminate the effects of fluctuating exchange rates, either currency forward contracts or currency futures can be used to fulfil this requirement. Both tools essentially lock in prospective exchange rates, thereby eliminating both...

“Timing the markets” has been a topic of investigation for many decades. Every investor dreams of the perfect system that will tell him to buy right at the bottom or sell right at the top. The same holds for investors who want to hedge or gear their portfolio by using options. If an investor...