Date

11 Aug 2020

Attendees

Agenda

1) Use Case reminder

2) Where we are on our road map.

3) Open Action Items

4) JIRA Issues Review - https://jira.edmcouncil.org/projects/DER/issues/DER-10?filter=allopenissues

5) Todays content discussion.

6) For next week.

Proceedings:

Continued discussion on equity swaps. A dispersion swap is essentially a variance swap (or vice versa) - https://en.wikipedia.org/wiki/Correlation_trading.

In the Swaps ontology, we should have correlation swap, with equity correlation swap being one of those, dispersion swap, with equity dispersion swap being a subclass of that ... A dispersion swap is a kind of correlation swap. Each has a formula that applies to the index, etc.

"A variance swap is an over-the-counter financial derivative that allows one to speculate on or hedge risks associated with the magnitude of movement, i.e. volatility, of some underlying product, like an exchange rate, interest rate, or stock index. " See https://en.wikipedia.org/wiki/Variance_swap.

Perhaps we should have statistical swap in the swaps ontology, then in equities have a subclass of that, including either the performance of a single stock, index, or basket. Could be the relationship between the performance of an individual stock against the performance of an index or other collection of things that one is comparing the performance against.

So at the top in equities, we should have the following legs:

dividend stream for a single stock (we have this)
change in value for a single share
change in value for a basket of shares
change in value for an index
value of a dividend stream for a basket of shares
comparison of the change in value of a given share or basket or index against something else - for example, a single share against an index, which is the thing you are cross-correlating with the volatility of the share

Variance and dispersion seem to be used interchangeably, whereas correlation is different. A correlation swap is an over-the-counter financial derivative that allows one to speculate on or hedge risks associated with the observed average correlation, of a collection of underlying products, where each product has periodically observable prices, as with a commodity, exchange rate, interest rate, or stock index.

Paper that discusses some of the formulas used for these kinds of things: http://wwwf.imperial.ac.uk/~ajacquie/index_files/Jacquier,%20Slaoui%20-%20Dispersion.pdf

Approach for us - create the high level definitions of correlation swap and variance swap in swaps, which are based on statistical calculations, and then the different kinds of legs that we might find in those, and stop there. No need to define the more arcane kinds of equations that might be used in those instruments, just that they exist at the top level.

For leg vs. stream - change the name universally to leg, where some legs might not be streams, they might be a fixed payment. A stream is a kind of leg, whereas a leg is a subcontract. We made that change already in IR swaps and should do the same here.

https://www.investopedia.com/articles/investing/052915/different-types-swaps.asp

Also look at https://www.investopedia.com/advanced-trading-strategies-and-instruments-4689645

Decisions:

Action items

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