Nam Nguyen, Ph.D.’s Post

Derivatives. They can be quite powerful and dangerous, but if you use them correctly, they can make you a lot of money or save your firm from ruin. But what if it's utilized wrong? They can make things explode. Let's be really clear about this. What is a derivative? A derivative is a financial agreement whose value depends on something else, like a stock, interest rate, currency, or commodity. It gets its worth from that asset. So when you buy a derivative on oil, you're not buying the oil itself. You're buying a contract that is worth more or less depending on the price of oil. Why use derivatives? There are three basic reasons why people use derivatives: To protect themselves against risk To guess (bet on price changes) To get visibility with less money up front 🔄 An Easy Example from Real Life: Think of yourself like a farmer. You plant wheat. You are afraid that the price of wheat will go down before the harvest. You sign a futures contract to sell your wheat at a certain price in three months. That's employing a derivative to protect against risk. Now picture yourself as a trader who believes that the price of wheat will go up. You buy that identical futures contract now, not because you have wheat, but because you want to make money when the price goes higher. That's only a guess. The Most Common Types of Derivatives Futures are contracts to purchase or sell something at a specified price on a set date in the future. Options give you the right, but not the duty, to buy or sell anything at a predetermined price by a certain date. Swaps are when you trade one cash flow for another, like fixed interest rates for fluctuating interest rates. Forwards are like futures, but they are customized and traded over-the-counter (not on exchanges). ⚠️ So... What are the risks? Derivatives can be quite dangerous because They are leveraged, which means you can hold a big position with a small amount of money. This implies that returns can be great, but so can losses. Prices change quickly; a slight change in the market can have a big effect on the value of the derivative. They are complicated; some derivatives contain several layers and moving pieces, including swaps and exotic options. Derivatives were at the center of big financial disasters like the 2008 financial crisis and the failure of hedge fund LTCM. So, how do people safely use them to make more money? This is how clever investors and professionals use derivatives: ✅ Hedging: Airlines employ gasoline futures to protect themselves against rising oil prices. ✅ Making money: Investors sell options to get premiums, such covered calls. Leverage: Traders can manage more assets with less money when they use options or futures. Access: Companies can use swaps and futures to deal with currencies or rates that would be hard for them to handle otherwise. It's not about betting; it's about using the instruments wisely and with discipline.

India’s Derivatives 2.0 Moment India’s derivatives market remains one of the great success stories of financial modernization. What began in 2000 with index futures has evolved into the world’s largest derivatives marketplace—deep, liquid and integral to the financial system. Yet the next leap forward will depend less on volume and more on vision and better market design.   Broadening the Base Derivatives 2.0 must widen both the product spectrum and the participant base. Domestic institutions continue to face restrictive regulations that limit their ability to hedge, innovate and manage risk effectively. The ecosystem must mature to serve not just traders, but also institutions, corporates and even farmers who need efficient risk-transfer mechanisms. Expanding the Product Landscape The next generation of products should include sectoral, thematic, volatility, and ESG-linked derivatives. Dormant asset classes such as currency and interest rate derivatives deserve revival. The outdated separation between equity and commodity markets must end—supported by unified clearing and robust cross-margining frameworks that reflect the integrated nature of modern finance. Modernizing Market Architecture Technology should anchor the next phase. AI-enabled surveillance, real-time risk analytics and responsive margin & expiry frameworks can make markets safer and more adaptive to investor needs. Market design must prioritize flexibility, transparency and systemic stability.   Opening New Frontiers It is time for policy clarity on the new edges of risk and innovation—event contracts, weather derivatives, carbon credits and even crypto-linked instruments. Properly regulated, these markets can enhance price discovery, resilience and economic relevance.   From Activity to Purpose The first wave of reform broadened participation; the next must deepen purpose. With thoughtful design, India’s derivatives markets can evolve from being merely the world’s busiest to becoming the most balanced—serving traders, investors, risk managers, innovators and the real economy in equal measure.

Bob sammy wamala Understanding Forex Trading Forex trading involves buying and selling currencies in pairs, with the goal of profiting from exchange rate fluctuations. The market operates 24/5, with traders from around the world participating in the buying and selling of currencies. Key Concepts: 1. *Currency pairs*: The Forex market involves trading currency pairs, such as EUR/USD or GBP/JPY. 2. *Exchange rates*: Exchange rates determine the value of one currency relative to another. 3. *Pips*: A pip is the smallest unit of price movement in Forex trading. Technical Analysis Technical analysis is a crucial aspect of Forex trading, involving the study of charts and patterns to predict future price movements. Key Technical Indicators: 1. *Moving Averages*: Moving averages help identify trends and provide support/resistance levels. 2. *Relative Strength Index (RSI)*: RSI measures the magnitude of price changes to determine overbought/oversold conditions. 3. *Bollinger Bands*: Bollinger Bands provide a volatility-based measurement of price movements. Risk Management Risk management is essential in Forex trading, as it helps protect your capital and minimize potential losses. Key Risk Management Strategies: 1. *Position sizing*: Determine the optimal position size based on your risk tolerance and account balance. 2. *Stop-loss orders*: Set stop-loss orders to limit potential losses if the market moves against your position. 3. *Take-profit orders*: Set take-profit orders to lock in profits when the market reaches a predetermined level. Trading Strategies There are various trading strategies that Forex traders can employ, each with its own unique characteristics and requirements. Popular Trading Strategies: Day trading,scalping, swing trading, etc. Conclusion Forex trading offers immense opportunities for individuals to profit from fluctuations in currency prices. By understanding key concepts, technical analysis, risk management, and trading strategies, traders can navigate the complex and dynamic Forex market with confidence. Whether you're a beginner or an experienced trader, continuous learning and practice are essential for success in Forex trading. About Us Our Forex tutorial company is dedicated to providing high-quality educational resources and training programs for individuals looking to learn Forex trading. Our team of experienced traders and educators are committed to helping you achieve your trading goals. Our Unique Selling Points: 1. *Expert instruction*: Our instructors are experienced traders with a deep understanding of the Forex market. 2. *Comprehensive curriculum*: Our training programs cover all aspects of Forex trading, from basics to advanced strategies. 3. *Practical training*: Our training programs include hands-on practice and real-world examples to help you apply your knowledge. By providing valuable insights, practical training, and expert instruction, we aim to empower traders to succeed in the Forex market.

𝗩𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻 𝗼𝗳 𝗮 𝗟𝗼𝗼𝗸𝗯𝗮𝗰𝗸 𝗢𝗽𝘁𝗶𝗼𝗻 𝗼𝗻 𝗫𝗔𝗨/𝗨𝗦𝗗 In our recent analysis, we conducted the 𝘃𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻 𝗼𝗳 𝗮 𝗹𝗼𝗼𝗸𝗯𝗮𝗰𝗸 𝗼𝗽𝘁𝗶𝗼𝗻 𝗼𝗻 𝗴𝗼𝗹𝗱 (𝗫𝗔𝗨/𝗨𝗦𝗗) using an advanced quantitative approach, combining 𝗠𝗼𝗻𝘁𝗲 𝗖𝗮𝗿𝗹𝗼 𝘀𝗶𝗺𝘂𝗹𝗮𝘁𝗶𝗼𝗻𝘀 𝗮𝗻𝗱 𝗧𝗚𝗔𝗥𝗖𝗛/𝗚𝗝𝗥-𝗚𝗔𝗥𝗖𝗛 𝗺𝗼𝗱𝗲𝗹𝘀 with a Student’s t-distribution to capture extreme events and fat tails. 🔹 𝗠𝗲𝘁𝗵𝗼𝗱𝗼𝗹𝗼𝗴𝘆 𝗮𝗻𝗱 𝗞𝗲𝘆 𝗥𝗲𝘀𝘂𝗹𝘁𝘀 ✅𝗚𝗼𝗹𝗱 𝗽𝗿𝗶𝗰𝗲 𝘀𝗶𝗺𝘂𝗹𝗮𝘁𝗶𝗼𝗻: 100-day horizon, daily steps, daily returns. Rt∼T4.72(μ=0.063%,σ=1.10%) ✅𝗗𝗲𝗿𝗶𝘃𝗮𝘁𝗶𝘃𝗲 𝗱𝗲𝗳𝗶𝗻𝗶𝘁𝗶𝗼𝗻: The 𝗹𝗼𝗼𝗸𝗯𝗮𝗰𝗸 𝗼𝗽𝘁𝗶𝗼𝗻 analyzed is structured so that its 𝗽𝗮𝘆𝗼𝗳𝗳 𝗮𝘁 𝗺𝗮𝘁𝘂𝗿𝗶𝘁𝘆 depends on the 𝗱𝗶𝗳𝗳𝗲𝗿𝗲𝗻𝗰𝗲 𝗯𝗲𝘁𝘄𝗲𝗲𝗻 𝘁𝗵𝗲 𝗵𝗶𝗴𝗵𝗲𝘀𝘁 𝗮𝗻𝗱 𝗹𝗼𝘄𝗲𝘀𝘁 𝗽𝗿𝗶𝗰𝗲𝘀 of the underlying asset (gold, XAU/USD) observed over the life of the option. This means that instead of only considering the price at expiration, the option rewards the holder based on how much the underlying price moved over time. 𝗧𝗵𝗲 𝗹𝗮𝗿𝗴𝗲𝗿 𝘁𝗵𝗲 𝗴𝗮𝗽 𝗯𝗲𝘁𝘄𝗲𝗲𝗻 𝘁𝗵𝗲 𝗺𝗮𝘅𝗶𝗺𝘂𝗺 𝗮𝗻𝗱 𝗺𝗶𝗻𝗶𝗺𝘂𝗺 𝗽𝗿𝗶𝗰𝗲, 𝘁𝗵𝗲 𝗵𝗶𝗴𝗵𝗲𝗿 𝘁𝗵𝗲 𝗳𝗶𝗻𝗮𝗹 𝗽𝗮𝘆𝗼𝘂𝘁. ✅𝗦𝗲𝗻𝘀𝗶𝘁𝗶𝘃𝗶𝘁𝗶𝗲𝘀: ✔Delta ≈ 0.53 → approximate change per USD 1 increase in gold ✔Gamma ≈ 0 → Delta stable, simplifying hedging ✔Vega ≈ 201,398 → high sensitivity to volatility changes ✅𝗘𝘅𝗽𝗼𝘀𝘂𝗿𝗲 𝗮𝗻𝗱 𝗿𝗶𝘀𝗸: Treasury Position and Exposure 🔵Notional: USD 50,000,000 🔵𝗢𝗽𝘁𝗶𝗼𝗻 𝗽𝗿𝗶𝗰𝗲: 𝗨𝗦𝗗 𝟮,𝟰𝟲𝟬.𝟰𝟲 𝗽𝗲𝗿 𝗼𝗽𝘁𝗶𝗼𝗻 🔵Number of options:20,321 options ✅𝗘𝘅𝗽𝗲𝗰𝘁𝗲𝗱 𝘃𝗮𝗹𝘂𝗲: ➡Client → USD 274 per option → Total: USD 5,567,954 ➡Bank → USD 𝟴𝟯𝟱 per option → Total: 𝗨𝗦𝗗 𝟭𝟲,𝟵𝟲𝟴,𝟬𝟯𝟱 🛡️𝗛𝗲𝗱𝗴𝗶𝗻𝗴 𝗦𝘁𝗿𝗮𝘁𝗲𝗴𝘆 – 𝗕𝗮𝗻𝗸 𝗣𝗲𝗿𝘀𝗽𝗲𝗰𝘁𝗶𝘃𝗲 Since the 𝗯𝗮𝗻𝗸 𝗶𝘀 𝘁𝗵𝗲 𝗼𝗽𝘁𝗶𝗼𝗻 𝘀𝗲𝗹𝗹𝗲𝗿, it faces significant 𝗿𝗶𝘀𝗸 𝗶𝗳 𝘁𝗵𝗲 𝗴𝗼𝗹𝗱 𝗽𝗿𝗶𝗰𝗲 𝗲𝘅𝗽𝗲𝗿𝗶𝗲𝗻𝗰𝗲𝘀 𝗹𝗮𝗿𝗴𝗲 𝗺𝗼𝘃𝗲𝗺𝗲𝗻𝘁𝘀. To protect the premium received and mitigate tail risk, the bank implements a 𝗱𝘆𝗻𝗮𝗺𝗶𝗰 𝗵𝗲𝗱𝗴𝗲: ↪𝗜𝗻𝗶𝘁𝗶𝗮𝗹 𝗻𝗼𝘁𝗶𝗼𝗻𝗮𝗹 𝗵𝗲𝗱𝗴𝗲:𝟭𝟮𝟭 𝗳𝘂𝘁𝘂𝗿𝗲𝘀 𝗰𝗼𝗻𝘁𝗿𝗮𝗰𝘁𝘀 🔹 𝗖𝗼𝗻𝗰𝗹𝘂𝘀𝗶𝗼𝗻 The combination of Monte Carlo simulations and advanced volatility modeling allows for accurate valuation of lookback options, capturing the nonlinearity of the payoff and extreme risks, and provides reliable tools to manage exposure and design hedging strategies. ⚠️ 𝗗𝗶𝘀𝗰𝗹𝗮𝗶𝗺𝗲𝗿 The information presented is for informational purposes only. Accuracy, completeness, or suitability of the data for investment decisions or financial transactions is not guaranteed. Any investment or derivatives trading decision should be made considering your risk profile and with proper professional advice. The author or presenting entity assumes no responsibility for losses or consequences resulting from the use of this information.

Some recent thoughts about predictions markets trading with a derivatives/hedge fund mindset: Most Polymarket & Kalshi traders think they're gambling. They're actually trading binary options—and ignoring the entire derivatives playbook that comes with it First, what's delta in traditional options? It measures how much your option's price changes for every $1 move in the underlying stock. If your TSLA Call has 0.45 delta, the option contract moves $0.45 for every $1 TSLA moves. The more likely the option is to hit (in the money), the higher the delta. Traditional delta is not a perfect fit in prediction markets bc there’s no underlying asset to track, it’s technically not a derivative. But in the Black-Scholes model used for option prices, delta can approximate the probability of the option contract “hitting” on expiry. Each Kalshi and Polymarket position inherently represents a probability, so this is a relevant mental model to use. Here are some 4 tips to use delta to trade prediction markets like a hedge fund: Tip 1: Hedge your worldviews like alternate universes. Betting on BTC > $140k, QQQ > $700, and 3 Fed rate cuts? They're all dovish-Fed, risk-on bets. If multiple bets resolve to the same outcome, you're levered, not diversified. Offset optimism with contrarian bets elsewhere. Tip 2: Hedge prediction markets with traditional instruments. In 2024, if you were long Kamala you would have done well hedging with S&P or crypto ETF calls. Betting on crypto pumps? Short BTC futures. Prediction markets let institutions hedge real-world exposures. Think in reverse and use other markets to hedge your event bets. Tip 3: Be wary of 50-50 markets without an edge. Options contracts are most “delta sensitive” at the strike price because a $1 swing makes it go from valuable to worthless. Similarly, 50-50 prediction markets are max convexity = max uncertainty. Moving from 30% Yes → 40% Yes is a 33% ROI. Moving from 50% → 60% is only 20%. 60-40 or 65-35 markets have better returns relative to certainty. Tip 4: Arbitrage delta/probability mismatches between predictions and trad markets Kalshi prices ETH>$4500 EOY at 65% but ETHE options imply 45%? That's 20bps of pure edge. Buy underpriced NO on Kalshi, buy ETHE calls or spreads. These kinds of mismatches are everywhere and it’s free $$. Full article ➡️ https://lnkd.in/guuk2Gjy

Hedging vs Speculation — Which One Truly Reduces Trading Risk in 2025? Every trader faces the same question — Should you protect your capital or chase bigger returns? That’s where the debate of Hedging vs Speculation begins. 📊 Hedging focuses on capital protection, offsetting risk through opposite trades and currency exposure control. 📈 Speculation is about identifying opportunities, timing price swings, and using analysis to profit from volatility. Both are powerful when used correctly — but they serve different goals. In 2025’s fast-moving forex markets, learning when to hedge and when to speculate separates consistent traders from emotional ones. This article breaks down real examples, market lessons, and practical tips to balance both approaches for long-term success. 🔗 Read full article: https://lnkd.in/db9RJP_Z 💬 Which side are you on — the Hedger or the Speculator? #ForexTrading #RiskManagement #HedgingVsSpeculation #ForexMarket2025 #TradingPsychology #SmartTrading #ForexEducation #TradeForexAI #MarketStrategy #FinancialLearning

Delta Hedging Automation: Where Risk Meets Real Precision In #volatile markets, risk management isn’t about prediction — it’s about balance. That’s where Delta Hedging Automation comes in. It’s the strategy top traders and institutions use to maintain stability when prices swing fast. Instead of manually adjusting positions, automated delta systems calculate real-time exposure and hedge instantly — removing emotion and human delay. The result? • Fewer panic-driven trades • Controlled drawdowns • Smoother equity curves As trading becomes more data-driven, automation isn’t a luxury — it’s a survival tool. If you’ve ever wondered how professional traders manage risk without losing sleep, this explains it perfectly 👇 🔗 https://lnkd.in/gE-NYFMp #Trading #Finance #DeltaHedging #AlgorithmicTrading #RiskManagement #Forex

💹 Financial Derivatives: Simplified for Professionals 💹 Derivatives are financial contracts whose value comes from an underlying asset—stocks, bonds, currencies, commodities, or interest rates. They are powerful tools for hedging, speculation, and portfolio optimization. Here’s a complete snapshot of all major derivatives: 📌 Forwards (OTC): Customized contracts to buy/sell an asset at a future date and price. 📌 Futures (Exchange-Traded): Standardized contracts on exchanges to lock in prices or hedge risks. 📌 Options: Right, but not obligation, to buy (call) or sell (put) an asset. 📌 Exotic Options: Customized variants like barrier, lookback, or digital options. 📌 Interest Rate Options: Hedge or speculate on interest rate movements. Cap: Protects against rising interest rates. Floor: Protects against falling interest rates. Collar: Limits both upside and downside exposure. 📌 Swaps (OTC): Exchange cash flows between parties. Interest Rate Swap (IRS): Swap fixed for floating interest payments. Currency Swap: Exchange principal & interest in different currencies. Credit Default Swap (CDS): Hedge against borrower default. Equity Swap: Swap returns of equities or indices without owning them. Total Return Swap (TRS): Exchange total economic return of an asset. Swaption: Option to enter a swap in the future. 📌 Forward Rate Agreement (FRA): Lock in an interest rate for a future period. 📌 Commodity Swap: Exchange fixed/floating payments based on commodity prices. 📌 Variance/Volatility Swap: Hedge or trade market volatility. 📌 Hybrid / Multi-Asset Derivatives: Combine multiple derivatives or asset classes (e.g., equity-linked notes). 📌 Structured Derivatives: Custom contracts designed for specific investor needs. 📌 Loan-Based Derivatives: Linked to loan repayments or interest, often in structured finance. 📌 Exotic OTC Derivatives: Tailored instruments with non-standard payoffs, including multi-leg swaps or structured notes. 💡 Why They Matter: Hedge risks across markets 🌍 Speculate efficiently 💹 Optimize portfolios 📊 Improve liquidity & price discovery ⚡ Derivatives are not just trading tools—they shape global finance.

I am pleased to present a new preprint on the robust hedging problem in quantitative finance using frictional martingale optimal transport. The motivation for this work grew from a slightly dissimilar topic (from a work on the unbalanced optimal transport). The problem discussed in this work has two fundamental aspects, finance and mathematics, and these are presented below. The financial aspect. Robust hedging seeks bounds and implementable strategies that remain valid across all models consistent with no-arbitrage and observed prices, rather than committing to a single specification such as the Black–Scholes framework. Here we hedge option payoffs, with European calls and puts as the primary focus, and include discretely monitored path-dependent claims. The dual problem has a direct financial interpretation: choose a static portfolio of liquid options together with a dynamic trading policy in the underlying so that, after trading costs, the gains dominate the payoff across all admissible scenarios. The friction terms in this work model proportional costs and liquidity impact. These lead to generation of no-trade bands where adjustment is uneconomic and trigger discrete rebalancing outside the band. The construction extends naturally from one rebalancing step to multiple dates via dynamic programming. The mathematical aspect. Classical optimal transport minimizes the cost of moving mass between two distributions. Martingale optimal transport adds the martingale constraint to encode the no-arbitrage property, making it a natural setting for model-independent pricing and hedging. Here I have introduced state-dependent convex trading costs into this framework and prove a frictional monotonicity principle that characterizes optimal couplings. The no-trade band is identified by a subgradient condition in the dual variable. Outside the band the optimal conditional law is bi-atomic and straddles the current state, with weights chosen to preserve the martingale mean. A one-step characterization aggregates through a dynamic programming identity into multi-step strong duality, and a vanishing-friction limit recovers the frictionless left-curtain structure. Link to preprint: https://lnkd.in/emXWACJY

📊 Day 8 – The Greeks of Derivatives: Measuring Risk & Sensitivity Derivatives trading isn’t just about predicting price direction — it’s about understanding how price reacts to multiple factors like time, volatility, and market movement. That’s where the Greeks come in — the backbone of modern risk management and option pricing. Let’s break them down 👇 --- ⚡ 1️⃣ Delta (Δ) – Price Sensitivity Delta measures how much an option’s price changes for every ₹1 change in the underlying asset’s price. Call options have positive delta. Put options have negative delta. 📈 Example: A call option with a Delta of 0.6 means if the stock rises by ₹10, the option’s price increases by ₹6. 💡 Higher Delta = more sensitive to price movements. --- ⏳ 2️⃣ Theta (Θ) – Time Decay Theta shows how much an option loses in value each day as it approaches expiry. Options are wasting assets — every day, a small portion of their value fades away. 🕰️ Example: A Theta of -0.05 means the option will lose ₹0.05 in value per day, all else being equal. 💡 Time always works against the buyer. --- 🌊 3️⃣ Vega (V) – Volatility Impact Vega measures how much an option’s price changes with a 1% change in volatility. When volatility rises, both call and put options become more valuable because the potential for profit increases. 💡 Higher volatility → higher premium → higher risk. --- 📉 4️⃣ Gamma (Γ) – Delta’s Rate of Change Gamma tracks how fast Delta itself changes as the underlying price moves. It’s especially important for traders managing large portfolios, as it indicates how quickly risk exposure can shift. 💡 High Gamma = bigger swings in Delta. --- 🧮 5️⃣ Rho (ρ) – Interest Rate Sensitivity Rho measures how much the option’s price changes when interest rates change by 1%. It’s less influential in the short term but matters for long-dated options. --- 🎯 In Simple Terms: Greek Measures Risk Factor Delta Price Sensitivity Movement of Stock Theta Time Decay Expiry Time Vega Volatility Market Uncertainty Gamma Delta’s Rate of Change Speed of Movement Rho Interest Rate Impact Economic Factors --- 📘 Key Takeaway: The Greeks help traders and investors understand how and why their derivative positions change in value. They transform trading from speculation to quantified risk management. --- ✨ Next up: Day 9 – Hedging Strategies: How Derivatives Protect Your Portfolio! #DerivativesWithVaishnavi #FinanceSeries #OptionGreeks #RiskManagement #StockMarketBasics #FinancialEducation #MMSFinance #InvestmentAwareness