# Tagged Questions

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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### Do Bond Put Dates always fall on Coupon Dates (for non-zero coupon bonds). Calculation rules for Coupon Dates

This may not be the most appropriate SE site to ask this question, but I can't seem to find a better place to ask, so here goes: Do Puttable Bonds' put dates always fall on Coupon Dates? When they ...
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### Arbitrage opportunity interview question

I have seen this interview question mentioned in a couple of places: There are three call options on the market, with the same expiry and with strikes 10, 20, and 30. Suppose the call option with ...
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### does local volatility make any sense when I only focus on vanilla option?

can someone explain me the usage of local volatility? details will be appreciated. Is it of any importance when I now are doing market-making? Please do not laugh at me as I am totally new in this ...
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I encounter a problem: do we have the following equality : $B(0,T_{i})e^{\int_{0}^{t}r_{s}ds}=B(t,T_{i})$ and if yes why because I am stuck with this ... I try to use that : $B(t,T_{i}) = ... 4answers 223 views ### European Call Option Delta Upper Bound For a pure equity process (with interest rate, dividend, etc., being zero) not necessarily the geometric Brownian motion, is the delta of a European call option always no higher than$1$? I am NOT ... 1answer 58 views ### Basic Metrics for Option Trading Limits Imagine a trading house that trades options in a modest way, and is looking for simple but effective metrics over which trading option limits will be set. Some random thoughts: 1) VaR is not ideal, ... 3answers 450 views ### When is it rational to exercise a bond option early? Consider american options on interest rate futures such as the 10-year treasury note. When is early exercise optimal? 1answer 76 views ### how to do interpolation in the term structure of volatility surface? everyone~ I am a newbee in the quantitative finance and I meet a problem in working out an equity option volatility surface. We use the reasonable market data to derive the implied volatility, then ... 1answer 74 views ### Implied Volatility in Heston Model recently I started reading the interesting book about option pricing in the stochastic volatility world from Lewis. He gives very interesting and detailed insights about this topic in general. However ... 1answer 74 views ### Why do banks offer options? [closed] I have only taken one introduction class in finance. However we came along opinions, their pricing, etc. We only contemplated being the buyer of a option. If everything works for you apparently you ... 2answers 102 views ### Sobol numbers in monte Carlo simulation I wanted to figure how how much faster the Sobol quasi random numbers convergence to the B&S call price compared with pseudo random numbers. To generate the Sobol numbers I used the randtoolbox in ... 0answers 29 views ### hedging of a spread option with call We have 2 underlying$S^{1}$and$S^{2}$with BS dynamic under the risk-neutral measure (r constant...) I found the (big) PDE satisfied by the price function$u(t,x,y)$of a call spread whose payoff ... 1answer 77 views ### Under what circumstances Veta is positive? In general, as the option moves towards expiry, its vega is decreasing. Are there circumstances where the veta, i.e. the sensitivity of vega with respect to time, is positive, that is when vega is ... 3answers 115 views ### Greeks for binary option? How to derive an analytic formula of greeks for binary option? We know a vanilla option can be constructed by an asset-or-nothing call and a cash-or-nothing call, does that help us? Wikipedia states ... 0answers 73 views ### Match different option high frequency databases I downloaded the “E-mini S&P 500 (Dollar) Options for 1/10/11” Top-of-Book (BBO) data. If you are interested you may download the data from the following link (approx. 80MB zipped and 1GB ... 1answer 138 views ### Volatility Surface Constituents, do's and dont's Recently I have been working a lot with implied volatility and volatility surfaces. The basic idea is easy to follow: 1) Gather market prices of options at different (Strike,Expiry) 2) Calculate ... 1answer 63 views ### pricing with implied volatility surface I am a newbee in Quantive finance. supposing I calibrate a smoothing implied volatility surface with cubic spline now. A minute later I want to price K=100,t=1 option, can I just find the point on ... 2answers 225 views ### Pricing options under a specific framework I have a specific framework in mind and I would like to value options under this framework. I am not sure whether a closed form solution exists or Monte Carlo methods would work. The framework I have ... 1answer 29 views ### no arbitrage condition for paylater option a paylater option has the folowing payoff:$(S_{T}-K)_{+}-P1_{S_{T}>K}$. To determine the fee P that the option holder must pay, we must write the non arbitrage condition. Why is it this: ... 1answer 58 views ### How to estimate the price of a European call when the underlying is not tradable? Assume you have a vanilla call on an underlying$S$with strike price$K$and expiry at time$T$. Let's say that$S$follows a GBM with volatility$\sigma$. In general, one would use the ... 0answers 12 views ### Option style with grant date The following option exercise style is somewhere between American and European: There is a fixed grant date$N_1$at which you determine at which date$N_2>N_1$the option will be exercised. So ... 0answers 73 views ### Example of optimal delta hedging in G. Barles, H.M. Soner option pricing paper There is a paper Option pricing with transaction costs and a nonlinear black-scholes equation by Guy Barles and Halil Mete Soner. And there is a section about optimal (delta) hedging, which I do not ... 3answers 138 views ### How to price a path dependent exchange option using? Assume you have two stocks$S$and$P$so that at initial time$t = 0$:$S_0 > P_0$. You bought an option which pays off$S_T - P_T$as long as$S_t > P_t$through the time$0 < t < T$. ... 2answers 626 views ### Why is the price of a call option with$K=0$equal to the price of the stock$S_0$? In a case of a call option with strike$K=0$, then payoff at expiration time$T$is equal to: $$(S_T-0,0)^{+}=S_T$$ In reality the price of the option on the date of maturity is never equal to the ... 1answer 77 views ### Calculating the volatility for Black Scholes The following problem is from the book by Hull. I did it but I am not sure it is right. I am hoping that somebody here can tell me if I did it right and if not where I went wrong. Thanks Bob ... 0answers 11 views ### where can I find OPRA data? [duplicate] Where can I find OPRA data. Here are a few criteria 1. Preferably free or for a small price 2. Supports quant api on cloud (so I dont number crunch on my computer) 3. Good reputation company 2answers 371 views ### How to price this option using the Black Scholes model? I have a question regarding regular option pricing. In the standard Black-Scholes model, with interest r and volatility$\sigma$, I have to eetermine the arbitrage free price at time$t$of an ... 0answers 161 views ### Formula behind pandas.Options() implied volatility I noted that implied volatility (IV field) from pandas.Options class is very different (especially, for out of money options) than what I compute with Black-Scholes model. (risk free rate is pulled ... 1answer 65 views ### Call and Put Prices Equal at Forward Price - Why? Consider a European call and put with values$C_t$and$P_t$, respectively, under the Black-Scholes model. By put-call parity, $$C_t - P_t = S_t - Ke^{-r(T-t)}$$ for expiration time$T$. Note if ... 2answers 835 views ### Options pricing exercise - American call option on a futures contract I am confused by a particular exercise I am doing right now, I am hopeful that someone can walk me through as to how to solve it. I further hope the question is not considered too basic for this ... 1answer 95 views ### Does the fact that volatility is not constant imply existence of skew? I had a question regarding the existence of the volatility skew. I've tried researching it a fair bit and I come across a few different explanations: 1. Market participants like buying downside puts ... 1answer 116 views ### What should be the sign of greek letter$\rho$? I'm reading the book Risk Management and Shareholders Value in Banking by Resti & Sironi. I quote a paragraph from the book (Chapter 5, appendix): The derivative of an option’s value with ... 0answers 85 views ### Turnbull & Wakeman Asian - not Edgeworth? My understanding is that Turnbull & Wakeman derived an approximation formula for continous arithmetic Asian option using Edgeworth series by matching the first two moments. However, in the book ... 0answers 79 views ### Delta Volatility Surface Usage to value the option I always find myself in the unknown charted territory when it comes to non-Linear Instruments. I come across the scenario, How to value the option using Delta Vol surface? Example I have CME traded ... 2answers 145 views ### VaR calculation methods of options I am a little bit confused about VaR in Options and I need a clarification for. I collected the following formulas, can you suggest what is the best formula and explain me why, please? 1answer 53 views ### Is it possible to detect a belief that a security will peak and then decline by analyzing American options pricing? Please forgive me if this is a dumb question. I know only the basics of options and their valuation, and this is a question I've wondered for some time without being able to find a satisfactory answer ... 0answers 18 views ### Methods Available for Derivative Pricing in Mathematica? [closed] I am using Mathematica to price options (built in functions, no need to reinvent the wheel, right?). In the documentation, the Binomial method is used as an example of specifying a non-standard ... 4answers 668 views ### Why does it take so many lines of code to price even the simplest of options with QuantLib I have been looking at QuantLib I am trying to figure out why I need to write so much boilerplate code even when pricing the "simplest" of European Options using the analytical Black-Scholes formula ... 1answer 116 views ### Understanding skew of SPX - Why does IV of OTM puts increase with strike? I've been trying to understand the skew I see when looking at the skew of SPX. Here is a snapshot today from thinkorswim. I understand why IV increases for ITM puts -- namely because there is a ... 1answer 318 views ### How to use a change of numeraire to price this option? I recently asked this question regarding how to price an option with payoff: $$\text{Payoff}_T = (A_TR_T - A_T \lambda)^+$$ Let's assume for generality that$A_t$and$R_t$are GMB's: $$dA_t = ... 1answer 122 views ### What is the correlation between these two functions of GBMs? Let's say that I have two correlated GBMs:$$dA_t = A_t \sigma^A dW^A_tdR_t = R_t \sigma^R dW^R_tdW^R_t dW^A_t = \rho dt$$I am trying to price a derivative which payoff at time$T$is: ... 0answers 198 views ### Max option leverage strike Since options represent leveraged stock investments, at which strike$K$does a European option provide maximum leverage? Hereby define leverage$L$as ratio of Delta/Optionprice: ... 1answer 79 views ### What is more likely effect to call and put prices, respectively, if the stock price decreases by$1?

The current stock price is \$80.Call ,and ,put, options, with ,exercise ,prices, of$50 and 3 days to maturity are currently trading. What is more likely effect to call and put prices, respectively, ...
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### Logic between options and risk free rate [closed]

What is the relationship between put option price and risk free rate? And between call options price and risk free rate? Explain the logic? No calculation.
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