PURPOSE
This document explains how CS Lucas computes MTM for currency options.
WHY IS THIS IMPORTANT?
Allow users to verify the formula and methodology used by CS Lucas to compute the Currency Options MTM.
BACKGROUND
The Garman-Kohlhagen options pricing model is used by CS Lucas for valuing options.
QUERY
1. Navigate to Reporting > Standards > Report 4301: Currency Option MTM.
2. Fill in the mandatory parameter – Acct Cntr, Valuation Currency, As At Date and Rate Type.
3. Click Action and select the required format to print.
4. The report shows the Type, Transaction, Accounting Centre, Counterparty, TDate, VDate, Exp Date, On Currency, Amount, Against Ccy, Countervalue, Strike, Premium, Amer/Eur, In/Out, Level, Status, Spot Rate, Volatility, Rpt Ccy and MTM.
Note: One of the currency of the Option trade must be the Enterprise currency to generate MTM.
For explanation of Excel Raw export, please see link.
For explanation of buttons, please see link.
DATA SOURCE
To view the following transaction,
Follow the steps as shown below:
1. Navigate to Transaction > Options.
2. Select Acct Cntr* (From example: TFS-SG)
3. Key in Expiry Fr* (From example: 01/07/2024)
4. Click Refresh.
5. Click the Edit button next to the Trade ID to drill down to trade details.
6. Countervalue: Amount * Strike -> K.
7. To compute MTM for Currency Options as at a particular reporting date, e.g. 25 Jul 2024, the following parameters are required.
Spot: Navigate to Prices > Exchange Rate (Valuation/Accounting/Alternate) -> R.
Vol: Navigate to Prices > Exchange Rate (Volatility) -> S.
For details on how to maintain exchange rates and volatility, see maintaining exchange rates.
Foreign interest rate: Navigate to Prices > Interest Rate. Foreign interest rate needs to be maintained under “_Continous” basis as at the reporting date. For details on how to add and maintain basis rates, see maintaining basis rate.
Domestic interest rate: Navigate to Prices > Interest Rate. Domestic interest rate needs to be maintained under “_Continous” basis as at the reporting date. For details on how to add and maintain basis rates, see maintaining basis rate.
FORMULA AND EXAMPLE
Click here to download the sample Excel tool to compute MTM. Enter VDate As At, Expiry Date, Volatility, Spot Rate, Strike Price, Foreign Interest Rate, Domestic Interest Rate and Quantity.
Note: If the system cannot compute the MTM, it will use the MTM as at the report date saved by the user on the Options listing screen. This MTM is in the transaction currency, so the system will convert it to the valuation currency using the spot rate (Valuation/Accounting/Alternate) as of the report date before displaying it in the report.
For example, if the user saved the MTM as 598,287.52 (CNH), then the MTM in the valuation currency (USD) is calculated as 598,287.52 * (1/7.2417) = 82,617.
FREQUENTLY ASKED QUESTIONS
RELATED INFORMATION
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