Swaption Delta Hedging Strategy

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Introdution

This notebook showcases how to delta hedge a Swaptions Strategy.

Environment

This section imports the relevant internal and external libraries, and sets up the platform environment.

import sigtech.framework as sig
from sigtech.framework.strategies.rolling_swaption_baskets import RollingSwaptionStrategy

import datetime as dtm
import seaborn as sns
import pandas as pd

sns.set(rc={'figure.figsize':(18, 6)})

env = sig.init(env_date=dtm.date(2024, 2, 22))

Universe

A USD Payer 6 month 30 year swaption rolling every 3M instrument will be created using the platform’s building blocks.

swaption = RollingSwaptionStrategy(
    start_date=dtm.date(2016, 3, 5),
    maturity='6M',
    currency='USD',
    group_name=sig.SwaptionGroup.get_group('USD').name,
    rolling_frequencies=["3M"],
    swaption_type='Payer',
    target_type='Fixed',
    target_quantity=1,
    include_trading_costs=False,
    total_return=False,
    end_date=dtm.datetime(2021, 4, 4),
    swap_tenor='30Y',
    ticker='Rolling Swaption'
)

swaption.history().plot();

swaption.greeks().tail()

Creating DeltaHedgingStrategy objects

We can now wrap our rolling swaption in the DeltaHedingStrategy building block. hedging_instrument_type="UNDERLYING" is specified to delta hedge using the actual underlying of the option. The delta_threshold is the minimum difference between held delta and current delta (in delta terms) needed to trigger a rebalance.

delta_hedged_swaption = sig.DeltaHedgingStrategy(
    option_strategy_name=swaption.name,
    option_group_name=swaption.group.name,
    currency=swaption.group.currency,
    hedging_instrument_type='UNDERLYING',
    start_date=swaption.start_date,
    end_date=swaption.end_date,
    include_option_strategy=True,
    delta_threshold=0.0005,
    total_return=False,
    ticker='Delta Hedged Swaptionv'
)

pd.DataFrame({'Swaption':swaption.history(),
              'Delta Hedged': delta_hedged_swaption.history()}).plot();

delta_hedged_swaption.plot.portfolio_table(

)

sig.PerformanceReport([delta_hedged_swaption, swaption]).report()