Explain exotic or over-the-counter contracts
Explain exotic or over-the-counter (OTC) contracts.
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These are not traded actively; they may be unique to you and your counterparty. These instruments need to be marked to model. And this clearly raises the question of that model to use. Generally in this context the ‘model’ implies the volatility, whether in FX or fixed income and equity markets.
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Explain statistical modelling way of determine the model.
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Explain marking to market with an example.
What will be the effect on riskiness of a portfolio if assets with negative correlations (even very low correlations) are taken together?
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