I was having a demo/ discussion with the head of our London index (equity linked products) desk last week. I have effectively been working for some months on a true “cross asset blotter”. While we were talking – there was some talk about using our cross asset blotter as a “poor mans structuring tool”. This is an interesting idea… I like the idea of being able to take a pile of assets in a ‘view’ and assemble them, look at them, etc.

Currently we support vanilla option strategies, variance swaps(here,here). asian and barrier option support is being wrapped up currently (tons and tons of minor concepts like quanto/ composite, etc). Some of the other products that this particular trader brought up got me to poking around trying to learn about them:

• Range accrual products – I like this 1 line explanation : “A Range Accrual Note gets a payoff for every day that some underlying is within the specified range”. Also see: here, here, here
• Dividend swaps (div swap – here, @ wilmott, also @ wilmott )
• PV Products (not sure what he is exactly talking about here)
• Swaps – (I know the basics of swaps already, more can of course not hurt)
• Options on varswaps (interesting ‘what if’ chat here on wilmott forums, risk latte’s take)

Moreover -I am interested more and more in variance swaps, options on variance swaps and other volatility of volatility type products.The migration from exotic to vanilla
I am always curious to see what is “structured” or “exotic” today – and what will next be “flow” or “vanilla” for our desks/ the street. There is a continual flow of structured/ exotic derivatives that have higher margin/ profit potential – since people have no good model to price them. From there – people figure out how to price them – the margins shrink – volumes pick up, bang! – commoditized products!

Derivatives – those happy, explosive financial toys oh how we love em’! (too bad we keep exploding them every few years – hello CDO/ MBS death the banks are enduring!!!).

-Chris

Comment on this post below

You must be logged in to post a comment.

You can leave a response, or trackback from your own site.