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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1answer
158 views

Distinguish between market makers and other participants?

Are there any known quantitative techniques to distinguish between market makers and other participants? I manually MFT, have no knowledge of these specialties, and may be observing phenomena that ...
1
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1answer
197 views

Black 76 for Options on Interest Rate Futures

This is my first time using Black76 to value options on IR futures and I have a question on $F$ and $K$. I understand the price for an IR future is usually quoted as $100 - r$. Do I use this price ...
3
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0answers
87 views

Estimating risk aversion (power or exponential utility) from options prices

I came across this literature and it seems like there are a number of ways people do this. You can do it for an option on any underlying as long as you can create the risk-neutral p.d.f. If you agree ...
7
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2answers
218 views

Extrapolating implied volatilities to small time

Could anyone please direct me to literature or methods for extrapolating the implied volatility surface towards small expiry? I'm looking to price very short time to expiry binary options (e.g. 5 ...
1
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2answers
237 views

Finding Probabilities Using The Binomial Model

I was not able to find a similar question when searching, but if I've missed one please feel free to point me to it. Unfortunately the closest example in the textbook was not terribly helpful either. ...
0
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0answers
55 views

pricing barrier options

Is there an easy derivation of this? I don't understand page 13 http://www.math.uchicago.edu/~may/VIGRE/VIGRE2010/REUPapers/Turner.pdf u(0, τ)=0 This problem has now become that of the flow of ...
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3answers
411 views

Understanding the concept of Martingale pricing

I am a bit confused about how to formulate a problem where I have to price an option on a stock. Many papers say that stock prices are best modeled using a geometric Brownian motion (GBM), and I ...
1
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1answer
187 views

How to explain the path dependency in binomial tree model to price options?

I'm new to quantitative finance, so I'm confused with the so-called path dependency in binomial tree model. Originally I thought the path dependency exists because in binomial tree model, we will ...
2
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1answer
129 views

Synthesize a futures spread option

Is it possible to synthesize a futures spread option using only the options on the spread's underlyings? If so, how? If not, is there another way? As an example, please show me how to synthesize ...
0
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1answer
251 views

Risk-free investment strategy for european call and put option

I have some trouble solving the following question: We have an european call and put option (with the same maturity date $T$ en strike $E=10$). The stock price now is $S=11$ and we use a continuous ...
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0answers
112 views

EOD Options data provider - optiondata.net

Does anyone have any experience with optiondata.net as data provider for EOD options data? How would they be compared to historicaloptiondata.com?
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1answer
162 views

How to construct the binomial model for European option?

The annual interest rate is 5.3% and the annualized volatility of a non-dividend paying stock over the next six months will be 12.5% (annualized). i) Construct binomial trees of 5, 10 and 30 periods ...
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4answers
371 views

compute sharpe ratio for options?

Calculating sharpe ratio for shares is a straight forward task: (average returns - risk free ) / standard deviation. However i remain baffled as to how to tackle the task for options, can someone ...
0
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1answer
130 views

Calculating Greeks in Covered Calls?

Just want to confirm whether Delta, Gamma, Theta, Vega will be calculated in the following way? Since we own 100 shares of stock while selling a call we need to subtract greek value from one? right? ...
0
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0answers
13 views

Where to find, d/l specific (OCC) historical Option data beyond the free 2 years [duplicate]

The OCC www.optionsclearing.com/‎ provides a nice breakdown for CBOE options data, however they only go back 2 years on any given day. Is there a good not-too-high-cost database one can recommend for ...
8
votes
5answers
609 views

From Fourier Transforms to Option Values

I am trying to understand how Fourier transforms & Characteristics functions can be used to calculate option values. However, I am having difficulty following the process that is used in several ...
0
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0answers
94 views

stock option strategies long vs short

What makes an option strategy long or short? I got the impression that if it is a net debit (you pay to open the strategy) it is classified 'long' (strangle, straddle) Then I learned about the call ...
2
votes
1answer
405 views

IB API quotes and speed

The title says it all. I trade futures options exclusively and wanted to see if anyone had insight into the quote speedsrobustness coming into the API. I'm using the Excel DDE right now just building ...
1
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1answer
164 views

Why is the VIX computed that way?

The VIX as a clear definition as defined in this paper I am interested to know why they came up with this formula. I smell some reasonably complicated explanation here so any pointer to a paper ...
2
votes
1answer
334 views

GARCH(1,1) prediction in R - Basic Questions

Background to question: Hi, I was trying to fit a GARCH(1,1) model to the variance of log returns of a series, and ARMA(0,0) for the mean. I was using the fGarch package to do this. The aim of the ...
2
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2answers
148 views

What is most reasonable approach to determine side of a multi-leg options order?

Say, 4-legged multi-leg options order with below leg ...
0
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1answer
113 views

Physical Option Implied Distribuition

So I got risk neutral probabilities from stock option prices. How can I then map them to a physical measure?
1
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1answer
367 views

Breakeven of a delta-hedged option

Basic question to which I surprisingly did not find an answer on here. What's the best approximation to the break-even (with respect to stock price) for an option that was hedged fully at point of ...
1
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0answers
70 views

Adjusted option prices?

I am trying to calculate IV of options for a ticker over the last 10 years. Problem is that some option prices don't make sense (for example, closing price \$31.94, but 30-day call option with 18 days ...
8
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2answers
820 views

Why are there still manual market makers in options

Why are manual market makers still predominant in options markets? Why haven't algorithms replaced these market makers, as they have for liquid stocks for example?
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0answers
102 views

“Real” DMA to Options Markets

I'm looking for a broker with DMA to large options markets (CME, ISE, CBOE). Broker should be HFT friendly, i.e. offer fast API, low fees for huge amount of trades and so on. Price is not an issue. ...
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0answers
224 views

Pricing options and bid-ask spread

Consider a non-liquid option market with a wide bid-ask spreads across all strikes. Spot: \$52 A snapshot of the \$50 strike shows: ...
2
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0answers
98 views

Pre-Trade Slippage Costs For Option Spread Execution

Is there a quant model that can help estimate how much slippage one would have to give up in order to get an "option spread" (vertical, butterflies, etc.) order executed? What factors should one look ...
2
votes
2answers
294 views

Index arbitrage with Options when not all underlyings have options listed?

One arbitrage strategy involves looking at the price of the Index Futures price compared with the prices of the options contracts for the underlyings. My question is, can this arbitrage strategy ...
2
votes
1answer
370 views

Monte Carlo Options Probability Calculation

I have a fairly simple problem for an application I am writing currently. How do you calculate the options probability of being in the money or touching a certain strike price. I know there are at ...
0
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1answer
285 views

Question about option theta

I have a question about a option theta. When I evaluate the option theta of near expiry put option using Black-Scholes formula given the data as follow: Index Level = 20,500 Strike Price = 20,000 ...
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votes
1answer
191 views

Where can I get real-time equity options quotes for a reasonable price (i am not a company) besides screen scrapping Yahoo! Finance? [duplicate]

Want to have electronic access to equity options quotes in real-time. Is there anyone offering this service to the individual investor for a reasonable price? Again it must be electronic, in other ...
1
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1answer
154 views

reinsurance pricing equivalent to option pricing

Is it true that pricing a reinsurance contact is equivalent to pricing an option. Basically a reinsurance just cuts off the risk exposure of the insured institution to a threshold say $K$. So if we ...
0
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1answer
160 views

Japan day count conventions

I am after a good comprehensive resource on Japanese day count conventions. By that I mean, is actual/360 or actual/365 used for pricing various options, forwards, futures, etc.
3
votes
1answer
1k views

Seagull option strategy - clear example

It looks like the subject of seagull option strategy is not as clearly explained as for other strategies (butterly, bull,bear spread). Thus, can someone provide a clear example of what you buy and ...
0
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0answers
164 views

CME historical option data provider

Is there any other historical end-of-day CME option data provider rather then CME DataMine? I've searched all the internet and found only CBOE traded options.
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0answers
27 views

explanation for preference of volatilities in option premium quotes [duplicate]

could any one suggest an explanation for why premium in option markets (currency or otherwise) are quoted as volatilities rather than (premium/abs(spot price - settlement price)) or some other ...
4
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0answers
77 views

Risk neutral measure in exponential levy model

Is there a method of finding a risk-neutral measure for assets driven by the levy process? I understand there is the esscher transform but I think it tends to transform the processes into ...
3
votes
0answers
123 views

How to price an option with two volatilities?

Imagine you have two volatilities, the second which is "activated" when the stock crosses a barrier called $p_b$. The present price is $p_1$. ($p_b>p_1$). This can be used to price options after a ...
4
votes
1answer
155 views

Estimating early exercise boundary for American put

I am trying to estimate the early exercise boundary for an American put option. I can find the put value through the Longstaff-Schwartz LSM method. How do I obtain the early exercise boundary within ...
5
votes
0answers
92 views

Basket option density in BS model

Let X and Y be two GBM’s, they have each a univariate log-normal distribution for some time t, that is $X_t\sim{LnN(µ_x, σ^2_x)}$, $Y_t\sim{LnN(µ_y, σ^2_y})$ and $Z_t=[X_t,Y_t]\sim{ MvLnN(μ, Σ)}$ ...
3
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1answer
203 views

options pricing using vwap

This is a question about why options prices do not take volume into account. The popular option valuation formula "black-scholes" certainly does not account for this and I don't suggest that it does. ...
0
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3answers
542 views

How to calculate return rates with negative prices?

I'm dealing with electricity options and I'm considering the possibilty of negative prices. I want two estimate the historic volatility. However, an arithmetic mean doesn't feel appropriate and ...
0
votes
1answer
104 views

Symmetry of option-implied probability density

I was wondering whether the option implied probability density of the log returns: $x = \ln\left(\frac{S}{S_0}\right)$ with S the value of a certain stock, is always symmetric ? I was asking myself ...
6
votes
2answers
998 views

Beta vs. Implied Volatility statistical arbitrage using options

Let two underlyings, $S_{1}$ and $S_{2}$, are correlated and $\beta$ is the slope of their returns linear regression, that is, it says how much $S_{1}$ co-variates with $S_{2}$ variance. For ...
1
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0answers
228 views

Implied volatility and greeks for american option with discrete dividends

What methods are available to calculate IV and greeks for an american option with discrete dividends, and how do they compare? Should I use Roll-Geske-Whaley and solve for a given option price?
4
votes
4answers
1k views

Why Drifts are not in the Black Scholes Formula

This question has puzzled me for a while. We all know geometric brownian motions have drifts $\mu$: $dS / S = \mu dt + \sigma dW$ and different stocks have different drifts of $\mu$. Why would ...
4
votes
4answers
1k views

How to calculate the implied volatility using the binomial options pricing model

I want to calculate IV for american options with dividends. So far I have found algorithms to calculate the option price given a volatility. Please can you point me to paper or implementation (R, ...
1
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0answers
49 views

CFLEX 2.0 accounting

The CBOE has a trading platform for custom options with CFLEX 2.0. However, it doesn't include a system to account for balances. Is there software to account for positions on CFLEX 2.0?
2
votes
1answer
290 views

Aprox intraday implied volatility using intraday option prices and EOD greeks

I have two options datasets: EOD IV and Greeks Tick option and underlying prices I'm looking to calculate IV for each tick. Is there a way to approximate the ticks' IV using last EOD Greeks and ...