# Learning isn’t innate, nor is the ability to build the knowledge and skills that come with it.

## navigating the chaos

Pandemonium to me is constructive chaos which describes my journey of unlearning and relearning in financial markets, building on my rigorous education via the practical experiences of the financial world.

My efforts to be a more multi-faceted/cross-asset professional in the early days of working life also came with its share of challenges especially on drawing parallels between local and international markets.

- Ps: Incidentally I’ve been carrying the first five letters of this domain in my name!

## Testimonials

## Resources

- All
- Time Value of Money and Cash Products(7)
- Interest Rate Derivatives(7)
- Financing Products(7)
- Credit Default Swaps(7)
- Options and Strategies(17)
- Rate Options(8)

## All Resources

For best reading experience please use devices with the latest versions of macOS or Windows on a chrome browser.

## Time Value of Money

Understood literally this means the value of a dollar erodes because of inflation and with passage of time.

## 1: Time Value of Money & Power of Compounding

Understood literally this means the value of a dollar erodes because of inflation and with passage of time.

## 2: Bootstrapping of Yield Curves – Par, Zero, Forward

Par curve is the spot interest rate curve for coupon bearing instruments as traded in the market,...

## 3: Duration & Convexity

Duration quite literally is the average time taken to receive the promised cash flows on a financial instrument.

## 4: Duration and PVBP for a Floating Rate Bond

It’s important to cover this base too, as for floating rate bonds if we apply the ‘time taken to receive the promised cash flow'...

## 5: Money Market and Cash Bonds

let’s begin with the most basic building block of the fixed income cash market that would become the foundation of derivative instruments ahead.

## 6: Foreign Exchange & Interest Rate Parity

Spot denotes the price of currency A in terms of currency B settled typically T+2. Any contract with non-standard settlement...

## Interest Rate Derivatives – As in the Real World

I’ll share the practical workings of interest rate swaps, cross currency swaps, cross currency basis and related variations.

## 1: Interest Rate Swaps – Pricing & Valuation

I’ll share the practical workings of interest rate swaps, cross currency swaps...

## 2: Unwind Value of an IRS

swap unwinds are computed as the present value of the cash flows (positive or negative) reflected in the difference...

## 3: IRS – Crucial Other Considerations (CVA, FVA, …)

Other considerations while entering into a swap are counterparty credit risk and funding of cash flows...

## 4: Cross Currency Swaps … How is it Different from an IRS

A variation of interest rate swaps, cross currency one can think of a CCS contract...

## 5: Intuition behind a cross currency basis swap

Now as a follow-up here’s the intuition behind the cross currency basis product – the term basis refers...

## 6: FX Swaps to FX Implied to Par CCS

We have discussed both FX swaps and cross currency swaps and now understand that both products...

## Financing Products

We are about to navigate back and forth between cash and derivatives and their mix to discuss some popularly talked

## 1: Financing Products – Common references

We are about to navigate back and forth between cash and derivatives and their mix to discuss some popularly...

## 2: Repo vs SLB

Comparison between ‘Standard’ Market Repos and Securities Lending/Borrowing...

## 3: Repo Pricing

Repo cash flows can be mimicked by going long a bond in spot and selling futures on it...

## 4: Asset & Liability Swap

Asset Swaps is a term used to describe a ‘swapped’ return whereby an investor in a cash product desires...

## 5: Collateral Swaps & TRS

Collateral Swaps is the exchange of two different assets for any given tenor. The lender of the lower quality collateral generally pays a spread...

## 6: Carry and Roll

Probably one of the most overused terms in financial markets across asset classes is carry and roll, often used interchangeably.

## Credit Derivatives – Credit Default Swaps

As we kickstart this subject let’s begin with the most liquid product in this space, the Credit Default Swap.

## 1: CDS Valuation and Pricing

credit default swap as the name suggests is a derivative contract that facilitates the swapping/exchange of credit risk...

## 2: CDS Hazard Rates and Default Probabilities

Let’s illustrate the computation of the credit default swap spread. Few things to remember...

## 3: CDS Swap of Two Floating Bonds

CDS cash flows work like fixed coupon interest rate swaps i.e. the payments made by the CDS buyer to the seller in practice...

## 4: CDS Bond Basis

In theory bonds can be delivered on CDS contracts in case of a default which should imply that credit spreads...

## 5: Risks on a CDS

Standard market convention is for the protection seller to pay par minus recovery value...

## 6: Critique on CDS

CDS pricing theory and the recovery mechanisms seem fairly standard when we read about it...

## 1: Stochastic Processes

Option contracts - are an arrangement entered between two parties where the buyer has the right but not the obligation...

## 2: Pricing of an Option

Pricing of an Option - Most pricing models calculate the price of an option using some form of hedging such that the portfolio of the option...

## 3: Intuition behind Black Scholes

Black Scholes option pricing equations for a European Call ( C ) and European Put (P)

## 4: Put-Call Parity

Put-Call Parity - is a key zero-arbitrage concept in the options world which explains that the total payoff of taking opposite...

## 5: Let’s speak Greek(s)

Option Greeks - risks embedded in an option contract that appear with movements in its variables and determine...

## 6: Volatility and its smiles

Implied vs Realised Vol - an extensively used term for the options world and one that crucially determines an option’s price...

## 7: Delta and Gamma Hedging

As a concept means neutralising the sensitivity of an option’s price due to change in the price of the underlying stock.

## 8: How Greeks adapt to smiles

Hedging and valuation of the option portfolio also crucially depends on the vol model assumptions...

## 9: Straddles

While it's hard to lay out watertight rules for structuring strategies (as markets can throw unimaginable circumstances)...

## 10: Strangles

This is a cheaper variation of a straddle that involves going long an OTM put and an OTM call again usually structured...

## 11: Bull Spread

Generally structured as buying a lower strike (base case at the money) call and selling a higher strike...

## 12: Bear Spread

Generally structured as buying a higher strike put and selling a lower strike put for the same expiry and same notionals...

## 13: Calendar spreads

Is a strategy to go short time decay by selling a shorter expiry option and buying a longer expiry one...

## 14: Risk Reversal

Risk reversals involve either selling an OTM Put and Buying an OTM call or Buying an OTM Put and Selling an OTM call...

## 15: Butterfly

A long butterfly spread involves buying a call (i.e. a call fly) each at a lower strike and higher strike while selling 2 calls...

## 16: Digitals

Are a binary payoff strategy - i.e. payoff is either zero or the notional of the trade - conditional on the underlying’s price trading...

## 17: Regular and Reverse Barriers

These options officially fall in the realm of structured products as they can be understood as a combination of at least two different options...

## Interest Rate Options Demystified

Interest rate Options - are options on interest rates that at it’s very basic construct can be described in three types

## 1: BSM vs Black

Interest rate Options - are options on interest rates that at it’s very basic construct can be described...

## 2: Embedded Bond Options

Bonds are frequently structured with optionality in them for either the issuer or investor.

## 3: Interest Rate Cap and Floor

Interest Rate Caps - are a certain type of option on interest rates that cap the exposure to higher rates...

## 4:Swaptions

Swaptions - are options on interest rate swaps either with a right (but not an obligation) to enter a received or a paid position...

## 5: Annuity and Convexity

The series of swap cash flows we have discussed so far are of the nature of an annuity...

## 6: Rate Option Strategies

The series of swap cash flows we have discussed so far are of the nature of an annuity...

## 7: Rate Option Strategies…Conditional Spread

Conditional Spread strategies using rate options now let’s look at option strategies on two different underlying...