A contract that gives the owner the right, but not the obligation, to buy or sell a security at a fixed price in the future.

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Special term for 'intersection' of option price

Suppose, I have written two ordered lists: $S_{call}= (\textbf{8000, 8050, 8100}, 8150, 8200, 8250)$ and $S_{put} = (7850, 7900, 7950, \textbf{8000, 8050, 8100})$. Entities are correspond to strike ...
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35 views

In an example of “call options”

The following is an excerpt from Introduction to the Mathematics of Finance by Roman: As a more concrete example, suppose that IBM is selling for $\$100$ per share at this moment. A $3$ month ...
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26 views

Is it possible to place hidden order inside spread when trading E-mini S&P 500?

My question is not about hidden orders in general. In equity market a trader can post his hidden order inside spread, is it the same way for E-mini S&P 500?
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373 views

How to derive the price of a square-or-nothing call option?

At maturity $T$, the holder of a "square-or-nothing" call option written on an underlying $S_t$ receives a payoff of the form $$ \phi(S_T) = \frac{S_T^2}{K} \pmb{1}_{\{S_T \geq K\}} = ...
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72 views

Is This A Viable Alternative Options Pricing Method?

i'm currently a high school student who hasn't gone past Algebra II, and thus I have minimal Calculus knowledge. I know the basics of Integration and Derivation (drop the coefficient, raise to the ...
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28 views

Estimate Option Price Given X% Move N Days in the Future

I was wondering if someone could recommend a method to estimate the price of an option N days from now given an X% move in the underlying. I have fitted a volatility surface but where I am running ...
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1answer
51 views

Why is H always* the letter used to describe the level of a barrier?

A quick and (hopefully) easy question. Why? *(always / often / when it's not B)
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34 views

Does a Call Spread always need to be symmetric?

I have a plot of a Call Spread Option at time $t ={0}$ but the graph of the call spread is not completely symmetric. My question is: does it have to be? Here is the plot I'm referring to: I'm just ...
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48 views

Carr-Madan european contingent claim payoff decomposition formula - application

Looking for some clarification to the values of the parameters used in the Carr-Madan payoff decomposition formula. $$f(S_T)=f(\kappa) + f'(\kappa) (S_T - \kappa) + \int_0^{\kappa} f''(K) (K-S_T)^+ ...
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1answer
103 views

Boundary Conditions for Call Spread

I was just wondering if someone could verify whether these are the two boundary conditions for a Call Spread Black-Scholes PDE. The first one I have is: $max(S_{T} - K_{1}, 0) - max(S_{T}-K_{2},0)$ ...
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18 views

Pricing with-profit/smoothed bonus annuity using Black-Scholes

Would this be possible? Subsequently, would the pricing of such an annuity be somewhat similar to pricing a lookback option?
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23 views

Is it possible to find / estimate the volatility surface of non-listed index options?

I have 3 QNET options (european, 2 puts, 1 call, all same expiry, different strikes) that the broker is pricing clearly off a volatility surface. Bloomberg only carries historical volatility and I ...
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53 views

Accurately calculating Greeks for options near expiration

I understand that when a vanilla European option is near expiry, the Theta calculated from BS formula is very inaccurate and almost meaningless for practical use. However, I'm not sure if other ...
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84 views

Numerical Methods for Merton Model

The stochastic differential equation for an underlying with jumps in Merton model is: $$d{{S}_{t}}=\mu \,{{S}_{t}}dt+\sigma \,{{S}_{t}}\,d{{W}_{t}}^{P}+(J-1){{S}_{t}}d{{q}_{t}}$$ where $t \quad\,\,\, ...
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1answer
75 views

Differentiating a Payoff

Okay this is probably going to be an extremely easy/straightforward question but I thought I should post it here just to double check. Suppose I have a payoff $\Phi = (S_{T}-K)^{+}$. Now let's say I ...
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1answer
189 views

Volatility Smile Approximation

Does anyone know what type of model is used to model the skew and IVs inside Thinkorswim platform for its volatility smile approximation? I am trying to replicate but do not know where to start. Any ...
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28 views

American call early exercise, considering a portfolio

Im aware there are lots of questions about this, but I am interested in a particular method of showing why an american call (with no dividends) should not exercised early. Here is the text I'm ...
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38 views

When is option value inversely related to expected volatility?

It is common knowledge that the greater the expected value, the higher the option value. However, there are surely exceptions, as written by Paul Wilmott's FAQs in Quantitative Finance Q: If you ...
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52 views

trading equities on options feed/microstructure data

Obviously, not asking for a trading strategy, but do people successfully use options feed/microstructure data to trade equities intraday? What's the general framework for such strategies?
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60 views

Option delta - Conditional probability definition?

Can someone help me interpret this definition of delta? Delta is a conditional probability of terminal value (St) being greater than the Strike (X) given that St > X for a call option. Is the ...
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75 views

Problems with a Black-Scholes modified equation

I haven't really studied much financial mathematics until about 2 months ago so I'm quite new to this stuff, so I'm sorry if this is a trivial question. At the moment I'm trying to work out what the ...
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31 views

Combos on close SPX

I am wondering if anyone has any information on how combos on close trade. I've been looking at the BTIC (http://www.cmegroup.com/trading/equity-index/btic-block-trades.html) and was wondering if ...
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74 views

What are the answers to these questions on card deck and option pricing?

here are 3 questions I have some trouble dealing with. Your help will be greatly appreciated! 1 - We have a deck card: 26 red, 26 black. we play a game: you draw a card from the deck without putting ...
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67 views

Why can a swap option be regarded as a type of Bond option?

Why can a swap option be regarded as a type of bond option? My idea: Suppose the swap rate of the swaption is $s$. Now consider a bond option expiring at $T$ with strike, $(P_K)_t = ...
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25 views

What does it mean when a risk reversal is near choice?

I'm currently reading Kathy Lien's 'Day Trading and Swing Trading the Currency Market' and I came across this phrase on risk reversals: "near choice". What does it mean when risk reversals are near ...
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44 views

Payoff of option

Consider the payoff $g(S_T)$ shown the figure: I believe the payoff represented as a linear combination of the payoffs of some options with different strike and same maturity $T$ is $$g(S_T) = ...
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56 views

Derivative: Delta of a Down and Out Call Option with Barrier=Debt(K)

I am trying to compute the derivative of this function with respect to V0: This is the price of a down and out call option, assuming the barrier equal to the level of debt K. In other terms, I need ...
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EMTA Guidelines

Does EMTA guidelines are only for Non-Deliverable trades? IF yes, then why this is applicable for Deliverable Option trades? EMTA Site - http://www.emta.org/ndftt.aspx
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47 views

Replicating American call option

Consider a two-period binomial model for a risky asset with each period equal to a year and take $S_0 = 1$,$u = 1.2$, and $l=0.8$. The interest rate for both periods is $R = .05$ a.) If the ...
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64 views

What are the some good measures of risk for options?

I've seen a number of measures of risk in my reading: Sharpe, Sortino, Calmar, etc. In CAPM there is Beta, and I've seen papers discussing how to modify CAPM for asymmetry. There is Value at Risk and ...
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66 views

Qualitative properties of call

I have read somewhere that we can show by using arbitrage argument the following relationship for call option : $$\frac{\partial{C_t(T,K)}}{\partial{K}}\leq0$$ ...
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61 views

Solution for american perpetual put

I have been attempting an exercise in which I have to determine the value of an american perpetual put, $P$ in terms of the asset value $S$. The solution to the exercise says: When $S>S_f$ (the ...
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99 views

How to hedge a barrier option with vanilla options?

I want to hedge a barrier option, say a knock-out call with strike K and barrier B out-of-the-money. My idea was to start from the payoff diagram of this option, and try to accomodate it with vanilla ...
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73 views

Butterfly spread model price

Consider a butterfly spread with strikes $K_1, K_2, K_3$. My professor wrote the model price, $V$, was equal to the following: $$V = exp(-rT) * P(K_1<S_T<K_3) * (1/2) \Delta K$$ where $\Delta K ...
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161 views

How to calculate Implied Volatility for out-of-the-money options?

I'm trying to calculate the implied volatility for out-of-the-money options, and to a lesser extent, in-the-money options. Most of the literature estimations I could find for implied volatility were ...
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70 views

Arbitrage opportunity in discrete time

Say we have the following binary option $B$ on asset $S$ with strike K and expiration time T, assume also that the following relation holds at time $0$: $B > N*C(K,T)-N*C(K+1/N,T)$ Where $N$ is ...
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Capital increase: which stock price to use as input to Black-Scholes formula?

For an exercise we have to calculate the theoretical value of a scrip / preferential right on its issue day (23 April) in the context of a capital increase. The scrips are issued on 23 April. The ...
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36 views

Old CBOE SPX options data: listing and expdate issue

I can't figure out the logic behind SPX option data for 2008-2009 years. First, all traditional SPX options have exp_date on the third Saturday of each month. How can it be? Why not Friday? Second, ...
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24 views

how to compute the risk free rate for a given maturity of an option contract?

i'm working on options with different maturities. I need to correspond a risk free rate for each maturity. What rate should i consider as risk free rate? thank you.
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104 views

Relations between Call and Put

I am trying to solve a question in finance but I am pretty much stuck and would need your help :) Suppose you know the following information about a market: Future is at 66 70 strike straddle is ...
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3answers
61 views

Constant Maturity IV

I want to analyze IV skew under various market conditions but its hard given various expirations. Would it make sense to create a constant maturity IV that say is 60 DTE? Has anyone done this and what ...
2
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1answer
54 views

Option pricing: Risk neutral probability calculation

Let $u=1.3$ $d=0.9$ $r=.05$ $S(0)=50, X = \text{strike} = 60$. Assume binomial model Why isn't the risk neutral probability found by solving the following for $p$: ...
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90 views

Monte Carlo Option Pricing: Averaging Price Per Path

In Glasserman's book, he computes the price of an option by first computing the average price over each simulated price path. Once all the paths have been simulated, the average of all the payoffs is ...
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Proving the convexity of put price [duplicate]

Prove that the price of the European put option is a convex function of the strike price in one-step binomial model. In other words, if $P_E(X)$ is the price of the European put option in one-step ...
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42 views

Portfolio replication option pricing: Money market position

Why when replicating a call option, the money market position (bond, risk free investment) is negative and when replicating a call option, the money market position is positive? Please explain ...
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1answer
55 views

Put-on-call option confusion

So the question asks: Given a 3-steps Binomial Tree model with $S(0) = 50$, $U = 20%,D = 􀀀20%$, and $R = 5%$. A European call option has the strike price $X = 40$ and maturity time $T = 3$. Also, a ...
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43 views

Put call parity: when are the premiums the same?

Please explain why put call parity could be compared to the payoff of a long forward contract. ie. $C_E-P_E=V_X(0)$ where $C_E,P_E$ are the call/put premiums and $V_X(0)$ is the value of a long ...
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61 views

Replication strategy of European call option

So the question asks: L et $S(0) = 120$ dollars, $u = 0.2$, $d = −0.1$ and $r = 0.1$. Consider a call option with strike price $X = 120$ dollars and exercise time $T = 2$. Find the option price and ...
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62 views

Taleb Modified Delta

How does one go about calculating the modified delta as proposed by Taleb in his book Dynamic hedging? In his book he says its a change in the call price divided by a change in the underlying and ...
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Construct option and stock portfolio

If a riskless security costs 100 today and will cost 120 at time T, a stock costs 50 today and will either be 70 or 30 at time T, and call options on the stock have strike price 50 expiring at time T, ...