FRM part II-market exotic options

anbu.edu
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Joined: Mon Feb 04, 2013 3:35 pm

FRM part II-market exotic options

Postby anbu.edu » Sun Mar 02, 2014 8:20 am

21.1. Each of the following is SIMILAR to a RAINBOW option EXCEPT for:
a. Option with payoff = MAX[Asset #1, Asset #2, Asset #3]
b. US Treasury bond futures contract
c. Credit default swap (CDS) with multiple deliverable obligations
d. Box spread


Can you please explain C
Source BT

pradeeppdy
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Posts: 258
Joined: Thu Sep 20, 2012 3:42 pm

FRM part II-market exotic options

Postby pradeeppdy » Tue Mar 04, 2014 8:41 am

Sometimes loan provider secure themselves by taking loan protection by third party this is called credit default swap.
Multiple deliverable obligations means the third party has the various options to pay the defaulted amount to loan provider.

pradeeppdy
Finance Junkie
Posts: 258
Joined: Thu Sep 20, 2012 3:42 pm

FRM part II-market exotic options

Postby pradeeppdy » Thu Apr 03, 2014 7:13 am

Credit default swaps are issued by the third party to protect the bond holder . If the bond issuer defaults then the holder recovers the amount from the insurance providing agency. For this the bondholder pays a series of cash flow to the party which provides insurance.


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