O'Reilly logo

FX Derivatives Trader School by Giles Jewitt

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Chapter 6Vanilla FX Derivatives Greeks

It is time to start some derivative analysis. The aim of this chapter is to introduce the basic Greek exposures on European vanilla options. This is stylized Black-Scholes analysis with zero interest rates throughout; hence the forward rate is always equal to the spot rate and discounting considerations can be ignored. The charts within this chapter can be generated in Excel after completing Practical C.

Option Value

A vanilla call option gives the right, but not the obligation, at maturity to buy spot (i.e., buy CCY1 versus sell CCY2) at the strike in the agreed notional. Exhibit 6.1 shows the value at maturity of a long (bought) vanilla call option over different spot levels. This value at maturity is often described as the option payoff.

c06ex001

Exhibit 6.1 Value at maturity of long vanilla call option with 100.00 strike

For a short (sold) vanilla call option, the value at maturity is reflected in the spot-axis resulting in an increasingly negative value above the strike, as shown in Exhibit 6.2. As expected, a long position plus short position in the same contract results in zero value over all spots (i.e., no position).

c06ex002

Exhibit 6.2 Value at maturity of short vanilla call option with 100.00 strike

The initial option premium is sometimes ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required