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DER 05.1 Earning embedded fees
The terms of OTC contracts are often written in such a way that there is no obvious cost. The fees charged by the dealer are embedded. The embedded fees can be deduced using standard option valuation methods. To earn the fees, it is often necessary to dynamically. Monte Carlo simulation is used to illustrate dynamic hedging by OTC dealers.
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Required reading
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Lecture notes
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Supporting files​
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