Question
1. You work in a Bank as the person in charge of the Derivatives desk and your responsibility is to open the derivatives portfolio from
1. You work in a Bank as the person in charge of the Derivatives desk and your responsibility is to open the derivatives portfolio from scratch (the bank does not have any open operations). The first day of operations arrives and a client operates the following with the bank: Purchase Call, Notional 100K usd, Strike ATMF, term 90 days Put Sale, Notional 100k usd, Strike ATMF, term 90 days Forward sale 90 days At the time of closing the trades, the market was trading as follows: Spot 20.00 usd/mxn MXN rate 90 days continuous cap 6.50% Rate USD 90 days continuous cap 2.00% 3Month Volatility 11% Calculate the following: Portfolio delta? Details the amount of the underlying that you would be long or short to cover the risk in the face of movements in the dollar peso. Calculate the PnL of the portfolio if the volatility goes to 21%. Do you win or lose money? Note: Assumes positions are from the bank's point of view
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