I understand it is never optimal to exercise an American call option early.   However, here are my two contradictory thoughts about selling an American call option early. Assumptions I can ...
I was wondering whether any literatures existed on how to properly estimate correlation matrices from historical data. Obviously the entire procedures allows a lot of leeway. The frequency of ...
1) Suppose S is the stock price, how to hedge a derivative that pays $1/S_t$ at time $t$? 2) Suppose there will be a dividend of amount $d$ between $t$ and $T$, how to hedge a derivative that pays ...
This question is related to the discussion on Model Validation Criteria However it appeard to be very high level to me and I would like to go more into detail. Not working at a pricing desk the ...
Consider a market composed by two stocks whose prices $X$ and $Y$ are given by B&S diffusion $$dX_t= \mu X_t dt+ \sigma X_tdW_t$$ $$dY_t= \mu Y_t dt+ \sigma Y_tdB_t$$ Supposing the market is ...
When market makers price options on hard-to-borrow equities, they include the cost to borrow the underlying equity that their broker is going to charge them to sell the security short to hedge. I'm ...
How can I use a binomial tree to price a European option that's based on a portfolio of equity products? I have volatility and correlation matrix of all underlying products? Looking for a formula ...