Pricing an Excess-Return Index Swap and Note

Summary

The document asks how to determine the initial delta for two linear products linked to an index made from a constant cash component and a credit default swap position. One product pays the index’s percentage performance at maturity; the other returns principal plus that performance. The question compares a collateralized swap with an uncollateralized one and asks whether discounting changes the expected delta.

No answer or pricing derivation is included, so the document does not resolve the delta or explain how collateral terms affect valuation. It is useful as a framing of the distinction between exposure to the underlying index and present value of future cash flows. Any conclusion would require additional contract details and a pricing framework, neither of which is supplied.

Key ideas

• The document distinguishes a swap paying index performance from a note returning principal plus performance.
• The index is described as a constant cash amount combined with a CDS position.
• It asks whether collateralization and discounting affect the swap’s initial delta.
• No answer or valuation method is provided.

Tags

# how to price a linear product on an index Excess Return


# how to price a linear product on an index Excess Return












I have an index excess return made of a cash constant (not drifting) plus a position on a cds.

I want to price a swap that simply pay/receive the performance of this index at maturity in 5y

(Sfin/Sini-1) at T=5y

Swap pv at inception is 0. if swap is collateralised ,what Delta am I expected to have a t0? 100% or DF ? same if swap not collat?

and for a Note that pays at T 100 + (Sfin/Sini-1)

what delta?

thanks

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.