The Greek letters: Scenario analysis with a reverse butterfly spread

Muhammad Mustafa RASHID

Abstract


Abstract. The management of risk is the goal of a financial institution that sells an option to a client in the over-the-counter markets. In addition to monitoring risks such as Delta(), Gamma () and Vega(v), option traders often also carry out, a scenario analysis. The analysis involves calculating the gain or loss on their portfolio over a specified period under a variety of different scenarios. The time period chosen is likely to depend on the liquidity of the instrument. The scenarios can either be chose by management or generated by a model.

Keywords. Financial institutions, Scenario analysis, Risk management, Portfolio management, Reverse butterfly spread.

JEL. G2, G10, G11, G13, G17, H2.

Keywords


Financial institutions; Scenario analysis; Risk management; Portfolio management; Reverse butterfly spread.

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References


Hubbard, R.G. (2007). Money the Financial System and the Economy, 6th Edition, Addison Wesley.

Hull, J.C. (2002). Options, Futures and Other Derivatives, 5th Edition, Pearson Collage Div.

Brealey M.A. (2008). Principles of Corporate Finance, 9th Edition, McGraw-Hill.

Rose, P.S., Marquis, M.H. (2008). Money and Capital Markets, 10th Edition, McGraw-Hill.

Gordan, R.J. (2011). Macroeconomics, 11th Edition, Pearson.




DOI: http://dx.doi.org/10.1453/jeb.v8i4.2263

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