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# 数学代写|期权定价理论代写Option Pricing Theory代考|FINM33000 RISK CONSIDERATIONS

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## 数学代写|期权定价理论代写Option Pricing Theory代考|RISK CONSIDERATIONS

In equities, it should be pretty clear whether one is considering upside or downside risk. Downside risk is if the value of the stock goes down and upside risk is if the stock appreciates dramatically. Further, if one is long the stock, then upside risk is positive to the stockholder and downside risk is negative.

In FX, the complexity of having two currencies to consider makes this more subtle. Perhaps one is a euro based investor who is long USD dollars. In that case the investor, regarding this particular exposure, is long US dollars and commensurately short euros. More complicated situations arise when options are introduced: if the euro based investor above attempts to hedge his or her long USD/short EUR position by buying a USD put/EUR call option. Since the premium for such an option is generally quoted in USD (see Section 3.3.1), purchasing the FX option hedge will make the option holder’s position somewhat shorter US dollars (as intended) and longer euros from holding the option – and additionally, short the number of USD required to purchase the option.

## 数学代写|期权定价理论代写Option Pricing Theory代考|SPOT SETTLEMENT RULES

A foreign currency spot transaction, if entered into today with spot reference $S_0$, will involve the exchange of $N_{\mathrm{d}}$ units of domestic currency for $N_f$ units of foreign currency, where the two notionals are related by the spot rate $S_0$, i.e. $N_d=S_0 \cdot N_f$. However, these two payments are in general not made on the day the transaction is agreed. The day on which the two payments, in domestic and foreign currency, are made is known as the value date. For conventional spot trades, which are almost always the case, it is known as the spot date. So we have two dates of special interest: today and spot.

It is often believed that FX trades settle two business days (2bd) after the trade date, known as $\mathrm{T}+2$ settlement, so that the spot date is obtained by counting forward to the second good business day after today. This is mostly correct, but with some notable exceptions and with the specific handling of holidays requiring some further explanation.

The first point to make is that not all currency pairs trade with $\mathrm{T}+2$ settlement. The most commonly cited exception is USDCAD which trades with $\mathrm{T}+1$ settlement; i.e. the currencies are exchanged one good business day after today. Eventually we shall probably see some currency pairs trading with $\mathrm{T}+0$ settlement. In the meantime, at the time of compilation of this work, the exceptions to $\mathrm{T}+2$ settlement $\mathrm{I}$ could find are listed in Table 1.2. For notational ease, we shall refer to $\mathrm{T}+x$ settlement. Now we need to define the concept of a good business day for currency pairs.

Definition: A day is a good business day for a currency ccy if it is not a weekend (Saturday and Sunday for most currencies, but not always for Islamic countries). For currency pairs ccy1ccy2, a day is only a good business day if it is a good business day for both ccy1 and ccy2.
The situation with respect to currencies in the Islamic world is complicated, and appears to vary by institution and country. The reason for this is that Friday is a particularly holy day for Jumu’ah prayers in the Muslim faith, influencing trading calendars similarly to Sunday in the Christian faith.

Weekends in Islamic countries are generally constructed with this in mind. For some countries such as Saudi Arabia, the weekend is taken on Thursday and Friday. It is, however, becoming more common for Islamic countries to change to observing weekends on Friday and Saturday – such as is the case in Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Oman, Qatar, Syria and the UAE – in an effort to harmonise business arrangements with the rest of the world and their neighbours.

Since readers with a special geographic interest in this trading region very likely have colleagues with local experience they can refer questions to directly, I refer the reader to the section ‘Arab currencies’ of the web page http://www. londonfx.co. uk/valdates. html for further details.

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