This article examines the strategies of sourcing the middle office functions in financial institutions. While some functions, in particular the back office functions in financial institutions are popularly and successfully outsourced or co-sourced, it may not be appropriate to do so for sourcing the functions of middle offices. Outsourcing or cosourcing of the middle offices implies contracting out the risk management function of a financial institution partially or completely. This may reduce the effectiveness of risk management implementation and may potentially expose the institution to great risk. This article compares different strategies, namely outsourcing, co-sourcing, and shared services; and shows that shared services has many advantages over the other two strategies.
Practical applications Exotic options are very powerful and widely used tools of risk management. However, because of the complexity of those contracts, the basic characteristics of many exotic options are not clearly understood, or are even misunderstood. Although most researches have been focused on developing models for pricing exotic options, it is important to study their unique characteristics and to understand them correctly. In addition, as the exact valuations of exotic options are usually difficult, it is useful to narrow the searching of the prices by placing boundary restrictions.ABSTRACT This paper presents the bounds of exotic options, namely compound options, barrier options and Asian options. There are two purposes of this study: first, option price bounds are used to reveal much insightful information regarding the distinctive characteristics of exotic options, which help to understand those complex derivatives; second, although the bounds of vanilla options have been long recognized, there is no such development for exotic options. This paper aims to fill the gap.
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