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7
votes
1answer
864 views

What are the most common/popular exotics in the interest rate markets these days?

By "exotic" I mean anything that is not a plain vanilla swap, swaption, cap or floor. Also any IR hybrids if appropriate. Possible examples would be: CMS and CMS spread options Multi-callable swaps ...
5
votes
3answers
614 views

Pricing callable range accruals on spreads

What is an efficient method of pricing callable range accruals on rate spreads? As an example: A cancellable 30 year swap which pays 6M Libor every 6M multiplied by the number of days the spread of ...
5
votes
1answer
143 views

What is the stochastic differential of a general semimartingale?

By using the canonical representation of a semimartingale in Eberlein, Glau and Papapantoleon's "Analysis of Fourier Transform Valuation Formulas and Applications", on page 3: $$H = B + H^c + h(x) ...
3
votes
1answer
124 views

PDE pricing of barrier options in BS

Path-dependent options in BS framework is intuitive to price with monte-carlo under risk-neutral measure, however it appears that several kinds can be priced with PDEs. I understand how does the story ...
2
votes
3answers
2k views

Why are exotic options most popular in FX?

I was reading Derman's latest blog post on Vanna Volga pricing, which, according to the linked Wikipedia article, is used mostly for pricing exotic options on foreign exchange (FX). This Willmott ...
2
votes
3answers
125 views

Pricing exotic option whose payout depends on the stopping time

I am struggling with this question: Let $B$ be a standard Brownian motion. In a Black-Scholes model, at time $t$, the stock price is given by \begin{equation} S_t = \exp \{ \sigma B_t + ( r- ...
2
votes
1answer
36 views

What different techniques exist for modeling exotics near payoff discontinuities in Finite Difference method?

If you are modeling an exotic, like a binary or a barrier, and hedging it with vanillas that have strikes quite close to the exotic's strike, then a large asset step size, for example, $\delta S = ...
2
votes
1answer
589 views

Implied Volatility for Asian option

I am new to the topic of Asian options. Assume I want to price an Asian put (fixed strike, discrete average) in the Black Scholes world. I know implementations to calculate the value but what is the ...
2
votes
0answers
115 views

Can I trade the volume of a security or index?

Is it possible to trade a derivative product priced on the volume traded of some underlying security or index? Does such a derivative exist on any exchange traded markets? Or anywhere?
1
vote
1answer
85 views

Key Rate Duration for MBSs greater than Key Rate Tenor

Key Rate Durations (KRD) are essentially some fixed income instrument's price sensitivity to a non-parallel shift in interest rates (i.e., a shift at the "Key" Rate). For example, a 10-year bond's ...
1
vote
0answers
177 views

For pricing, what types of Exotic Options are suitable using Local Volatility Model / Stochastic Volatility Model?

I understand that Stochastic Vol Models should be used when Exotic Option payoff is Volatility dependent (such as Variance Swaps and Volatility Swaps). Stochastic Vol Models should also be used when ...
0
votes
1answer
193 views

Exotic option pricing

I'm trying to price an option with payoff $\max\{a\cdot S_t - K,0\}$ where $a$ is a known constant. Ideally I'm looking for a closed form, continuous-time solution. Where should I begin?
0
votes
0answers
33 views

Derivation of the formulas for the values of European asset-or-nothing and cash-or-nothing options

The asset-or-nothing European option pays at t = T the value of the stock when at time T that value exceeds or is equal to the exercise price E, and nothing if the value of the stock is below E. So, ...
0
votes
0answers
298 views

R or Matlab code for Multi-Barrier-Options (3 or more underlyings)

I am looking for R or Matlab code examples of multi-barrier-options (or multi-barrier reverse convertibles) with at least 3 underlyings. Do you have such code or can you point me to a place where I ...
-1
votes
1answer
1k views

Can someone explain what “Exotics Trade Capture” capture means in layman's terms?

I am trying to find out what Exotics Trade Capture entails. I can't find anything on Google that isn't a job posting, which is where I saw this term. Say you did this for a living, how would you ...