Economics · Financial Derivatives

Consider the following statements regarding financial derivatives: Statement 1: A Credit Default Swap index, such as the CDX or iTraxx, represents a standardized basket of credit entities that allows investors to gain diversified exposure to the credit market without purchasing individual contracts, but these indices are strictly restricted to sovereign debt and cannot include corporate entities under the current International Swaps and Derivatives Association (ISDA) protocols. Statement 2: The process of Delta Hedging involves a dynamic adjustment of a position in the underlying asset to offset the price risk of an options portfolio, requiring the hedger to buy more of the underlying asset as its price rises for a long call option position, thereby maintaining a delta-neutral stance that is immune to small price movements but still exposed to Gamma and Theta risks. Statement 3: In the valuation of a vanilla currency swap, the initial exchange of principal amounts at the start of the contract is purely symbolic and does not impact the calculation of periodic interest payments, while the final re-exchange of principal at maturity is conducted at the prevailing spot rate of that future date to ensure that neither party suffers a capital loss due to currency fluctuations. Based on these statements, which of the following is true?