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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2
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109 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
481 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
463 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
votes
1answer
361 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 ...
0
votes
1answer
262 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
169 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
votes
1answer
301 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
2k 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
205 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.
0
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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
votes
0answers
81 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
138 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
182 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
106 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
votes
1answer
249 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
votes
3answers
855 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
112 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 ...
7
votes
2answers
1k 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
vote
0answers
353 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?
6
votes
5answers
2k 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
2k 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, ...
2
votes
1answer
429 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 ...
3
votes
1answer
142 views

Different Exercise Style Options on Same Underlying

Some equities on European markets have options traded in two different exercise styles: American and European. Examples: ABB and ABB (european) on Eurex Banco Santander on MEFF Consider ...
2
votes
2answers
944 views

backtesting options strategies in R

I would like to backtest an options strategy in R. I require the ability to delta hedge and rebalance to options in the portfolio at different frequencies (daily, monthly,etc.) What packages are the ...
7
votes
5answers
2k views

Best way to store hourly/daily options data for research purposes

There are quite a few discussions here about storage, but I can't find quite what I'm looking for. I'm in need to design a database to store (mostly) option data (strikes, premiums bid / ask, etc.). ...
2
votes
2answers
287 views

Hedging credit risk using Put equity options

I am looking for some paper or similar which deal with this topic: hedging bankruptcy on firm's debt using Put options written on that firm's equity price. This should be based on the assumption that ...
1
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0answers
291 views

Interpolate option volatility in delta space in R

I have a bunch of deltas and option implied vols at those deltas. I would like to interpolate them in R. Interpolating them in delta space seems difficult, since normally you would like the ATM calls ...
4
votes
5answers
2k views

Call vs. Put Option

I have two interrelated questions that have been bothering me for some time. I have read all the stuff online and it still doesn't make sense to me: Let us assume: 0% interest rate (both hedge ...
5
votes
1answer
1k views

Implied dividend estimation

I am looking at two different ways of estimating the expected / implied dividends from market data. 1. Dividend futures I know that this asset class is not very liquid and might not be ...
2
votes
1answer
126 views

Hedging differences between equity and index options?

Suppose we hedge an index option using futures on that index. How would the hedging strategy be different if the underlying could be traded directly (from a risk point of view)?
4
votes
5answers
577 views

In Black-Scholes, why is $\log{\frac{S_{t+\triangle t}}{S_t}} \sim \phi{((\mu - \frac{1}{2}\sigma^2)\triangle t, \sigma^2 \triangle t)}$?

Namely, I dont understand why the mean is $(\mu - \frac{1}{2}\sigma^2)\triangle t$ and not just $\mu \triangle t$. I am aware that it is supposed to represent a lognormal distribution, but I guess I'm ...
2
votes
2answers
188 views

How to synchronize put and call option-data?

I recently retrieved a large amount of European option data, for call and put prices, from OptionMetrics. Doing so for the same time period I get a file consisting of 62558 rows of call prices & ...
7
votes
3answers
8k views

How to compute Implied Volatility Calculation?

We all know if you back out of the BS option pricing model you can derive and solve what the options is "implying" as its volatility. However, what is the formula used to derive Implied Volatility ...
4
votes
1answer
2k views

Call option arbitrage opportunity

I am having trouble wrapping my head around some text provided to us by our lecturer (unfortunately he is currently unavailable). If we let $c$ be the price of a European call option, $S_0$ the ...
0
votes
2answers
161 views

monthly contract volume required for penny increments?

Have the exchanges disclosed their criteria? Does anyone have a best guess based upon observations of volume (however you wish to define it)? Please no qualitative answers.
2
votes
1answer
359 views

Calculating the probability of a price change using an options pricing formula

I don't know if I'm doing this right and I'd greatly appreciate help. I'm trying to use an option pricing formula to backout the likelihood of the Euro dropping below $1.27, even for a minute, at any ...
0
votes
2answers
165 views

changes in open interest vs changes in underlying volume

Has a relationship been noted? Mostly, I'd like to know if the open interest increases on an underlying, does the underlying usually see increased trading? My guess would be "yes" since MMs can ...
3
votes
3answers
2k views

Does implied vol vary for calls vs puts?

Volatility skew tells us that options with the same maturity at different strikes can have different implied vol. However, can a corresponding call and put for the same strike and maturity have ...
4
votes
1answer
183 views

Hedging with actual volatility: problem understanding the math behind the result

From this paper. page 3 We get that the total profit at expiration is the difference in value between the price of the option with actual volatility and the one with implied volatility. I have tried ...
3
votes
2answers
116 views

Endogeniety of Black-Scholes

I know this is a naïve question but how does the BS formula have a closed form solution? It seems from what I am reading Price impacts delta, price influences volatility which in turn influeces delta ...
2
votes
2answers
1k views

Theta's effect for OTM options

How does $\Theta$ change for deep out-of-the money options? Looking at the below graph, it seems the time decay is highest for ATM options and increases rapidly as we approach maturity of the option. ...
4
votes
2answers
2k views

Why FX Vanilla Options are quoted in volatility

I've been curious why vanilla options are quoted (and traded) in terms of volatility. Considering that every financial institution has its own options pricing model, volatility as an input would cause ...
5
votes
0answers
430 views

option chain data visualization, sunburst

I think option chains are not represented in the best way. With more and more options products coming out and trading on the various exchanges, I see vendors struggling to keep up with a good way to ...
3
votes
1answer
252 views

Can a long put trade be profitable through Vega even if the underlying moves upwards?

Generally speaking, I know when implied vol increases, option prices increase for calls. However, does the same occur for puts? If I am expecting implied volatility to increase for an option on an ...
3
votes
1answer
234 views

how to define liquidity in equity, index, and etf options

i've heard several ways to put a metric on liquidity of options.. obviously liquidity isn't a constant.. things like the Bid/Asks spread, liquidity of the underlying.. Trying to find a way to ...
2
votes
1answer
143 views

OTC Equity Options' Dynamics

This only applies to options that do not have marketable equivalents since margin can be marked to them. I've never been able to find this on my goog. How is margin typically calculated for OTC ...
4
votes
2answers
684 views

Why doesn't a simulated delta hedging process go to zero?

I put together a simple simulation of delta hedging a set of options with an underlying and it seems that the fluctuations of the price still seem to affect the final outcome. The reason, I understand ...
2
votes
1answer
679 views

How to calculate implied volatility and greeks in Bull Put Spread option strategy?

Ok, obviously I am buying lower strike put and selling higher strike put. What is the recommended volatility and greeks to consider in my trade? Volatility: Average volatility between both legs? ...
4
votes
5answers
6k views

How to calculate stock move probability based on option implied volatility and time to expiration? (Monte Carlo simulation)

I am looking for one line formula ideally in Excel to calculate stock move probability based on option implied volatility and time to expiration? I have already found a few complex samples which took ...
4
votes
2answers
255 views

How to quickly sketch a second order greek profile for a vanilla position?

Assume that you are given an arbitrary payoff profile for European vanilla position (e.g. butterfly). How to make a back of the envelope sketch of a second order greek profile for it (i.e. plot ...