Questions about models for the valuation of option contracts.
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1answer
157 views
Does an option's price “ratio” with the underlying security price?
I'm trying to understand option pricing better.
Let's say security ABC is \$40, and a 38 PUT option with 40% implied volatility (and 90 days till expiration) is priced at X. If security ABC then ...
0
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1answer
88 views
Reference on SDE driven by jump processes
Are there reference on SDE driven by jump proccesses? e.g. Shepard-Nielson Model
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1answer
236 views
Which prediction market model is efficient and simple to use?
For a college project I'm tasked with implementing prediction market. Which model of it I'd better choose?
I want something useful and simple enough for other people to quickly understand and use. ...
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1answer
212 views
What are the rules for quoting option prices on the market?
I have implemented a monte carlo pricer for an option. I simply don't know how many decimals I need to include in the quoted price. Can anyone please provide guidelines?
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1answer
123 views
Numerical difficulties in fitting option prices
In [1], the authors state that "Although some studies apply the curve-fitting method directly to option prices, the severely nonlinear relationship between option price and strike price often leads to ...
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1answer
154 views
Question on OptionMetrics: “Strike Price times 1000” differs too much from Index price
I have a question regarding the strike price that is given on OptionMetrics. My goal is to primarily retrieve options prices of a specific maturity with strike prices that are 20% in-the-money, ...
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0answers
48 views
earnings reports and option pricing
Let's assume that company XYZ reports earnings in a 0% interest rate environment and the option expires shortly after earnings. And there is a 50% chance the earnings are good (an upmove) and 50% bad ...
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1answer
80 views
Change option B&S pricing
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 ...
-4
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0answers
31 views
Forward contract question [closed]
Ok one last question today.
We consider a contract BF with payoff
$$BF_T = \max\lbrace S_T, F_S(0,T)\rbrace - K_0$$.
The parameter $K_0 \gt 0$ is fixed in such a way that, under no arbitrage, the ...
-7
votes
3answers
517 views
True or False? An option's price will always be greater than or equal to its intrinsic value
Since if the option's price is lower than its intrinsic value (eg. strike price - current stock price for puts), then an arbitrage opportunity arises from buying the option at bargain and then ...
