EAKO User Guide
www.eakocapital.com
Last updated
www.eakocapital.com
Last updated
As the underlying currency pair (e.g., EURUSD) moves from left to right along the x-axis, this diagram reports the payoff of the strategy as being either:
A positive profit value if above the x-axis.
A negative loss value if below the x-axis.
Neither a profit, nor a loss if on the x-axis.
Payoff Diagram:
Maps the derivative to the underlying exposure.
As the underlying currency pair (e.g., EURUSD) moves from left to right along the x-axis, an unhedged position would see its exposure moving up the y-axis in a one-for-one relationship. This is represented by the 45 degree upward sloping line, labelled "Exposure = Spot".
In contrast, a FX Forward fixed at-the-market-forward (ATMF) rate would report the same single rate on the y-axis for all movements in the underlying rate. This is represented by the dotted horizontal line labelled "Exposure = Forward".
Payoff Diagram:
The following diagram combines the Profit Payoff Profile of the above Knock-In Forward with that of the underlying Spot position.