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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+50

Options Data Sources

I am using Option Metrics to study a couple of things related to options. However, Option Metrics is quite limited in terms of scope (mainly it's US equities). I was wondering two things: 1) Are ...
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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 ...
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2answers
125 views

Computing loss of Call / Stock Purchase

A seller of an European Call, can, subjectively have unbounded losses. This loss may be mitigated by buying the stock (covered call). In this case,, the loss will be bounded at A. How would one ...
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0answers
30 views

Equity protection and butterfly certificates pricing

Certificates issued by famous industry names are usually made up by a combination of a fixed income instrument and some vanilla and exotic options. I am looking for something which explains: how to ...
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0answers
124 views

Simulation of Heston process

I am currently working on implementing Heston model in matlab for option pricing (in this case I am trying to price a European call) and I wanted to compare the results I obtain from using the exact ...
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0answers
50 views

replicating strategy three step binomial

I am having some trouble setting up a replicating strategy for a call option with a three step binomial model (discrete). I have no trouble doing this in a two step binomial model by backward ...
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0answers
133 views

Modeling market sentiment and pricing options by volume, open interest

Are there any empirically-proven methods/formulas for weighting IV surfaces, pricing a discount/premium in an option, and/or adjusting any of the 1st- or 2nd-order Greeks for the magnitude (volume or ...
2
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2answers
168 views

Calculating time value of an option

Can someone provide me with a robust way of calculating the future time value of an option or point in the direction? I have been reading a lot about the factors that affect it and about betas and ...
2
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1answer
184 views

Reuters RIC chain for Eurodollar midcurve options

Can someone please tell me what this is? Thanks. Edit: The RIC for the straight eurodollar options is 0#GE+, I need RICs for the 1,2,3,4 mid curve options which the IMM/IOM calls GE0, GE2, GE3, ...
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1answer
93 views

Price an option whose strike price is always lower than the future price of the security

Suppose it is known that the price of a certain security after one period will be one of the $m$ values $s_1,\ldots,s_m$. What should be the cost of an option to purchase the security at time $1$ for ...
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0answers
352 views

What equation will convert implied yield volatility to implied price volatility?

I am trying to figure out how to turn implied yield volatility of a short-term interest rate into implied price volatility. Is there an equation to do this? I have come across the equation for a ...
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0answers
59 views

What is the main reasons to use Miltersen & Schartz (1998) model for commodity futures options

versus a standard Generalised Black and Scholes model (if there are any?) I have read the paper but I am not to sure about its practical implications as would people with more experience using this ...
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183 views

Zakamouline Optimal Hedging of Options with Transaction Costs

I've read that the Zakamouline method suggests the best optimal hedging of options when taking transaction costs into account. I've read the article but am having difficulty understanding it well ...
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0answers
61 views

How to interpret CME's specification regarding grains options expirations?

Looking at the contract specifications for Soybean Meal and Soybean Oil (same for Corn, Wheat, and other major stuff I checked) serial options on CME I see the following expiration rule: the last ...
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0answers
349 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: ...
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0answers
139 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 ...
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0answers
100 views

Option symbol conversion [closed]

Maybe more of a programming question, Is there a Ruby gem to facilitate conversion of an option symbol notation from one form to another? For example, one source provides TZA1220J18 but an API for ...
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0answers
79 views

Any thoughts on how Warren Buffet's B of A warrants might be “marked-to-market” by either counterparty?

It's not too long since Berkshire Hathaway got its 10-year warrants in Bank of America alongside its \$5 billion purchase of preferred stock. At the time I saw some discussion about the value of ...
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0answers
146 views

How to find the upper bound of a digital option given some market data?

Given the price of a call equals to 5 with Strike 100, please find the upper bound (sup) of the digital option with strike 105. I am not sure about the solution, but I write the condition like this, ...
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171 views

What is the highest frequency greek for options on futures on bonds?

I'm considering exchange traded options of futures on bonds. Options on bond futures are usually American, thus the Black model is out of question. Which is the most imporatant Greek with respect to ...
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0answers
211 views

Tian third moment-matching tree with smoothing - implementation

I was wondering if someone has an implementation of the Tian third moment-matching tree (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1030143) with smoothing in code (e.g. c++, vba, c#, etc.)? ...
2
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0answers
351 views

Delta-Omega Hedging [closed]

I am currently trying to understand the in's and out's of options and more specifically hedging. I came across a document that was talking about Delta Hedging which is just making sure the delta of ...
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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 ...
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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 ...
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2answers
125 views

Which volatility to use?

For calculating the greeks http://www.vollib.org/html/apidoc/vollib.black.greeks.html Should I use historical volatility or implied volatility?
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2answers
289 views

Option arbitrage with dividends?

If a stock pays a discrete dividend, the stock price falls by the amount of the dividend. There is no arbitrage opportunity from this predictable jump, because the investors receive the same amount of ...
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3answers
223 views

What is the name of this product?

Consider the payoff =$S_T1_{S_T>K}$ where $S_T$ is the asset price at maturity. What is this type derivative called? and is it a liquid option?
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1answer
227 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 ...
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4answers
161 views

analytic formula for the value of an American put option

It seems to be a foolish question but I can't take my mind off from , Is it true that there is no analytic formula for the value of an American put option on a non-dividend-paying stock (or a divident ...
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2answers
365 views

Estimate simple option price without a calculator

I have been to two different interviews for jobs related to option trading, and both time I have been asked a question, which is pretty basic, and still I could not answer it. If you have an European ...
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1answer
103 views

Why doesn't VG flatten volatility skew for short term options?

The VG process, from my inexpert point-of-view, seems to nearly perfectly model equity distributions. For longer term options, there is little to no volatility, skewness, or kurtosis parameter skew. ...
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1answer
131 views

Mysterious disappearance of options from historical datasets

I am in the process of analyzing historical options data, and I keep finding options that mysteriously disappear before they are due to expire. For example: For the QQQ $69 Put, ...
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1answer
653 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 ...
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1answer
847 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
60 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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1answer
59 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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1answer
39 views

Where are the prices of real European Call options listed?

In order to solve an exercise, I need data from real European Call Options (on the same underlying). It sounds definitely trivial, but actually I feel a bit lost...do you mind giving a link/suggestion ...
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1answer
59 views

AmericanOptionImpliedVolatility strange answers for calls IV's

My data provider includes the greeks. I tried to compute the IV's myself using RQuantLib and see if they match -- for Puts it's generally close, for Calls however certain values are way way off -- any ...
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2answers
59 views

Is the Binomial Tree Model not self-financing?

Consider a 2-period binomial tree where the derivative price is $f$ and the stock price is $S$. Also, let the bond be deterministic with continuous growth rate $r$ and initial value $B_0$. binomial ...
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2answers
161 views

Intuitive Reasoning for Using Risk-Neutral Measure

Although we thoroughly covered risk-neutral pricing in university I never fully understood it in the context of continuous-time processes. But first of all, lets consider a discrete time example: ...
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2answers
176 views

How market making in Index options is done?

I have been thinking about this one for last couple of days. With options on share we hedge on cash and the underlying equity as per Black-Scholes formulation. But I am confused on Index options. ...
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2answers
282 views

Can we trade option spreads with more than 4 option legs?

I am wondering why most online brokers restrict multi-legged options spread trades to have a maximum of four legs? Also, is there a broker that allows you to trade say 6 or 8 legged option spreads.
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2answers
447 views

Is it wrong to use 'real world' probabilities for option valuation?

Is it wrong to use 'real world' probabilities for option valuation, even when the market is not liquid enough to delta hedge the option? My instinct is that it is wrong, because the time value of ...
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1answer
130 views

Calculating deltas of call options?

From a continuous standpoint, I understand why an ATM call has delta = 0.5 and for ITM call, the delta approaches 1 since each move in the underlying corresponds to same unit of value change in call ...
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1answer
428 views

Calculating Theta assuming other variables remain the same

Is there any way to calculate theta at X day in future based solely on knowing 1) Total Current Option Price 2) Days Till Expiration How would this be done? Thank you
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1answer
42 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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2answers
65 views

Black-Scholes and Markovian contingent claim

Background information: Proposition 4.1 - For a European Markovian contingent claim, the Black-Scholes price satisfies $$\Theta(\tau,S) = -\frac{\sigma^2 S^2}{2}\Gamma(\tau,S) - rS\Delta(\tau,S) + ...
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1answer
43 views

About the Feller Condition in Heston Calibration

I have noticed when reading (many) articles about Heston Calibration that not all (few actually) do care about the Feller condition. Below is a compilation of calibration results from some different ...
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1answer
84 views

Option Chain Implied Volatility Calculation

I have the following EOD options data for the SPY containing IV data for each strike. ...
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1answer
67 views

PPPN: premium with real market data

A few days ago, I posted a question about PPPN's (partially principal protected notes), which can be found here:PPPN: participation rate, stocks and premium. A PPPN in short is a structured product ...