Exotic Credit
Does anyone here trader/sell/structure CLN's or the like? I might be selling them in the future so wanted some color.
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CLNs are not particularly exotic...i mean they can be, or they might not be....what do you want to know?
I might be interning selling EM CLN's (and whatever other structured innovations they come up with) next summer and I just wanted to know what type of clients buy these puppies. I know broadly that institutions are the clients, but more like what type of return/risk appetite they have, etc. How sphisticated they are.
the exotic-ness depends on the structure...i havent been in credit land for a while, but things like first to default baskets arent all that exotic anymore.
i have no knowledge of credit appetite in the emerging markets.
in Rate land? out of curiousity/
On the exotic side? take your pick.... the rate and spread range accruals are very popular in the us. there's a fair amount of rate/fx and rate/equity hybrid stuff. leveraged steepeners. autocallables. all sorts of things.
jimbo... what do u think of the book "robust libor modeling and pricing of derivative products"? i've been readin thru it, mostly learnin the math involved in the first few chps, this summer in between work...
no idea
Do you mean a primer on exotic options? Or on the rate land stuff? Can't help with rate land but for exotics here is a quick 5 minute primer: http://thismatter.com/Money/Options/exotic_options.htm
Mentions accrual options there. Then use google for the rest. I suggest reading some papers on the pricing on "vanilla" exotic options (up and out etc) if you aren't familiar. Here is a good one: http://www.math.nyu.edu/research/carrp/papers/pdf/multipl3.pdf
like which ones? tell me what you know and i can fill in the blanks.
the basic idea is that exotics aren't really exotics...a replicating portfoilio of securities or derivatives with more basic payoff patterns can be constructed to form the same payoff structure as the exotic. that's how banks can issue these exotics; they hedge them using the replicating portfolio and charge a spread between the cost of the replicant and the exotic. sometimes the banks have actually created new derivatives in order to help hedge the risks on the exotics they make (i.e. the iTraxxx products for credit correlation). evervything jimbo mentioned has such a replicating portfolio.
in theory yes. though actually not all exotics can be replicated in traded vanilla space. the market in outright rate correlation simply doesn't trade in certain pairs.
and even ones that can in theory be replicated easily can be very difficult to hedge in practice.
yup.
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