FangQuant › OTC
1. Risk analytics on positions
The market risk managed on OTC products included the position exposure risk Delta, the volatilities risk Vega, the non-liner risk such as Convexity, the risk of liquidity.
For example, securities firm issued snowball products with underlying of CSI500 index, so securities firm hold the long Vega positions. To hedge CSI500 Vega positions, the trader can short the listed CSI300 options, or sell long term such as one year period OTC CSI500 calls, to reduce the Vega exposure.
2. The OTC products
In year 2021, there was one fast OTC products development such as
Vanilla Spread options
Scaled call options (80-80 structure)
Downside cushion structure
Automatic redemption structure of snowball product
Plan for shareholders reduce their holdings at high prices
Buyout style reverse repurchase
Derivatives of fund products
Take snowball products as example, the issuers longed CSI500 index futures for hedging, taking advantage of the discount rate of CSI500 index futures and the margin leverage (as margin ratio of CSI500 is 15%, then 85% of the fund can be invested in fixed income asset), expecting the basic narrowing and fixed-income return as dividend return. The issuers also needed to calculate the volatility of the structure.
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