# 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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### Moneyness and option prices

I'm attaching stock prices from CRSP to a dataset of option prices in order to compute the option moneyness. I'm wondering whether I should adjust the underlying prices taking into account splits and ...
210 views

### How to calculate the probability of 2 options ending in money with different expiration dates?

Lets say I make a trade that consists of buying one put and 2 calls of the same underlying but with different expiration dates and different strikes. Example trade: ...
203 views

### Historical Implied Volatility Calculation

I'm trying to calculate implied volatility for the FTSE 100 for the last few years. I have all the end of day data from LIFFE for the last few years. I have combined the data by weighting the ...
231 views

### How to 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 ...
631 views

### forward implied volatility skew

I would like to calculate implied forward volatility skew. I have stochastic volatility monte carlo. What kind of payoff do I need to price and how to use Black() formula to calculate the implied ...
59 views

### Opposite of hard to borrow?

If market participants are certain a stock will suffer a huge decline, the shares will become hard to borrow and an interest fee will be applied to borrow the stock. This interest fee eliminates the ...
202 views

### Analysis of Unbalanced Covered Calls

Hello I am doing an analysis on covered calls with and extra amount of naked calls. Ignore the symbol and current macroeconomic events. I couldn't find any reference to this strategy (unbalanced is ...
318 views

### Does it make sense to use upward and downward volatility in option pricing?

Historically stocks have a higher likelihood to increase in price than to fall in price. As such would it make sense to split a stocks volatility measurement into upward and downward components? For ...
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### When $C(K_2) = C(K_1)$ for call options with the same expiration date

The exercise is to show $C(K_1) \geq C(K_2)$ where C(K) denotes the value of a call option on a stock price S with strike price K. We assume the expiry is the same for both. I have proved this by ...
1k views

### What are the main flaws behind Ross Recovery Theorem?

Stephen Ross’ new paper claims that it is possible to separate risk aversions and historical probabilities if the Stochastic Discount Factor is transition independent using Perron-Frobenius Theorem. ...
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### Delta formula for FX vanilla option

What value do you use for annual dividend yield? It does not apply in case of FX.
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### 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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### Is the price of a binary call not monotonous with vol for OTM

Is this true and how would you prove it
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### Is there a better way to price options than with historical volatility?

I know that annualized historical volatility calculated with closing prices is a much rougher estimate than implied volatility for the correct "volatility" parameter in options pricing models. ...
89 views

### Binary option expression

Given r=0, σ(K)=const Binary=lim┬(ε→0)⁡〖((C(K,σ(K))-C(K+ε,σ(K+ε))))/ε〗 What is the analytical expression for the binary option value? σ(K)=const Therefore, Binary=lim┬(ε→0)⁡〖((C(K)-C(K+ε)))/ε〗 ...
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### C# - Using Black Scholes Newton returns NaN occasionally

First caveat: I'm a programmer doing this for a client, and my knowledge of options probably has holes in it. So be a little forgiving here. =) The Issue: When I run Black Scholes Newton against ...
48 views

### Normal vol - convention

apologies for the simplicity of the question, but I was wondering: what is the quoting convention for normal (bps) volatility? Say I have the following time series of data: Date Close Abs Change 20-...
423 views

### What is the formula for beta weighted delta and gamma?

I am trying to calculate the beta weighted delta and gamma for a portfolio of options of different underlying stocks, but I can't seem to find the correct formula. Can someone point me to it or a ...
2k 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 instance,...
717 views

### SABR calibration: simple explanation and implementation

I would like to learn more about the SABR model and ho it is used in modeling smiles in equity, FX and rates markets. How would you explain the process and its implementation in simple steps? Any web ...
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### How literature come up with risk-neutrality problem, considering that market is not really risk-neutral?

I am searching on real-option pricing deficiencies to encounter risk-neutrality. As we know risk-neutrality assumption, is not hold in real situations. The problem is that I could not classified ...
2k views

### How to calculate the most realistic historical option prices with additional publicly available parameters

This is a follow up question of this one. My aim is to create the most realistic historical option prices possible with publicly available data. I want to do this for backtesting purposes. The ...
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### how to use known premium of options to determine premium of options with another strike?

Assuming constant volatility across all strikes, how to use known premium of options to determine premium of options with another strike? e.g. suppose we know premium of \$40 call and put, \$50 call ...
314 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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### finding the strike / maturity of warrants given their ISINs

I have a list of French traded warrants identified by their ISINs. I do not know, however, to which stock they refer and what is their strike/maturity. Which datasets allow me to retrieve this ...
2k views

### Historical Value At Risk on option portfolio

I am new to Value at Risk subject in fact everything related to quant. Can any body validate the Value at Risk Model on the option price ? I am using a below explained approach . our portfolio ...
348 views

### Does anyone have a C# implementation of the Barone Adesi Whaley options pricing model?

Thanks. Can't seem to find it through google. Worst case, if you can provide me the code in Java or C++ I can convert it to C#.
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### Can selling put equity options be a good business?

In one of his last books Jack D. Schwager suggested that selling equity puts can be a good business. The puts are like insurance policies against market downturns and there is a natural demand. ...
778 views

### How does Volatility Pairs Trading work?

I've read some material related to pairs trading for equities and I understand the process of finding non-stationary pairs price series that can be cointegrated to form a stationary series. The basic ...
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### Literature on Empirical Option Pricing

When I started combing through the literature I was astonished about how little the option pricing models are tested against market data and benchmarks are limited. The main barrier is of course ...
3k 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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### SVCJ (SVJJ) Duffie et. al Model implementation in Matlab

I'm attempting to implement aforementioned SVCJ model by Duffie et al in MATLAB. so far without success. It's supposed to price vanilla (european) calls . parameters provided, the expected price is: ~...
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 ...