example III.1.17

Discussion of Pricing, hedging and Trading Financial Instruments
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david
Posts: 22
Joined: Thu Apr 07, 2011 10:28 am

example III.1.17

Postby david » Sun Jul 15, 2012 5:34 am

Hi Carol,

Why is that the principal is calculated at 330p instead of 331p? This quote 330-331p should be dealer's quote i.e. 331p is the price the dealer is willing to sell the shares for or the price at which we shall buy the shares from the dealer.

Thanks

David

coalexander
Posts: 815
Joined: Sun Sep 28, 2008 10:30 pm

Re: example III.1.17

Postby coalexander » Wed Jul 18, 2012 6:09 pm

Hi David,

In the TR swap the fund manager sells at 330 and buys back at 321, and the principal is typically based on the initial price. If other way round (bet on price rise) the fund manager would buy at 331 and sell at a (hopefully lower) dealer's ask price and then principal would be based on 331. Hope this helps, Carol

david
Posts: 22
Joined: Thu Apr 07, 2011 10:28 am

Re: example III.1.17

Postby david » Sat Jul 21, 2012 1:13 pm

Got it. Cheers!


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