Target Redemption Forward (TRF) was a popular exotic derivative in the foreign exchange market. In August 2015, RMB depreciated suddenly after a reform of exchange rate, causing about 150 million loss on TRF investors in Taiwan. Banks in Taiwan serve as back-to-back agents in TRF trades, buying TRF contract from foreign investment banks and selling them to domestic investors. While domestic investors default on the contract, banks in Taiwan must still pay the loss to foreign investment banks, which caused continuous loss for them. My research focus on the pricing of TRF and designing hedging strategies for TRF investors. The research will help domestic banks to understand more about TRF, and to hedge for outstanding contracts.
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