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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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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85 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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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 ...
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74 views

zero coupon problem calculus

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}) = ...
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95 views

Analysis of exercising a call option early

Most options traders sell their call options early instead of exercising them, as you would make a bigger profit this way due to being able to salvage some remaining extrinsic value. For example: ...
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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 ...
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58 views

Immunization: Whats the best way to hedge my short interest rate exposure?

What's the best way to hedge a portfolio against a rise in rates? Portfolio: long bonds different maturities. a) parallel shift b) convex shift (short and long term rise more than mid term) How is ...
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20 views

Where do Over-allotment (Greenshoe) option shares come from?

I'm just wondering, if following an IPO the share price goes up and the underwriter calls the option, where do those extra 15% shares come from? Does the company have to issue more stock to cover the ...
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136 views

Linear combination of geometric Brownian motion

Let $X_t= e^{\left(\mu-\sigma^2/2 \right)t+\sigma W_t}$ be a geometric Brownian motion with drift $\mu$ and volatility $\sigma$. I am trying to find an analytical solution to $$\mathbb{E}\left[ ...
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99 views

Transaction costs on option trades

It looks like the commissions alone for a non-index option trade is around 2-5%. For example, a BAC June ATM Call is currently trading at \$0.20; Interactive Brokers charges $0.7 per contract, which ...
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149 views

Buying OTM puts and then selling stock

What is to stop someone from first buying a bunch of OTM puts and then selling short enough stock to make the puts go up high enough to make a profit? Or conversely, buying OTM calls and then buying a ...
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51 views

Does a call calendar lose its entire value if underlying increases well past the strike?

If I buy a call calendar spread, and the underlying increases, both options are in the money by the expiry of the short call. So both options increase in value, but the short one increases less ...
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285 views

Market data for options

Looking for recommendations on places to get market data for options. I'm looking at NYSE and NASDAQ only. My current solution is my broker, Tradeking. I can request realtime data for 700 option ...
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428 views

Why is the vega of an at the money option so insensitive to movements in volatility? I.e, why do ATM options have such little Vomma?

I've been trying to understand why at the money options have very little vomma. I was reading and came across a graph that showed vega as volatility changes and I couldn't grasp how the relationships ...
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628 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 ...
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192 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 ...
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90 views

Anybody knows the answer to this exercise found in PWIQF?

I got this question from the last exercise of chapter 2 from "paul wilmott introduces quantitative finance" book. Appreciate your help.
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549 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 ...
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451 views

What is the Rho of an option on a futures contract priced using the Black 76 model?

I wanted to quickly confirm some simple calculations for the Black 76 greeks and was making use of the formulas on this website: http://riskencyclopedia.com/articles/black_1976/ I have an issue with ...
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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 ...
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278 views

Practical equity options pricing

To price a vanilla option, the following information are required : Strike price; Underlying price; Volatility; Maturity; Dividends rate; Repo rate; Interest rate; The strike, underlying price, ...
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288 views

Risk management of options

Your client would like to buy a digital call option. the digital call option pays the buyer in one years time (i.e at maturity ) N=1m SGD, if the SGD USD spot rate at maturity is above a prescribed ...
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626 views

Price of a down-and-out call in terms of European call

If $EC(S_0, K, \sigma, r, T)$ represents the price of a European call option with strike $K$, expiry $T$, initial price $S_0$, volatility $\sigma$ and where the constant interest rate is $r$, then I ...
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220 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 ...
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141 views

Brent Crude Data

I am trying to locate historical volatility data (5+ years) for Brent Crude? Does anyone know where I might be able to source such data?
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97 views

Relations between Call and Put

I am trying to solve a question in finance but I am pretty much stuck and would need your help :) Suppose you know the following information about a market: Future is at 66 70 strike straddle is ...
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83 views

Monte Carlo Option Pricing: Averaging Price Per Path

In Glasserman's book, he computes the price of an option by first computing the average price over each simulated price path. Once all the paths have been simulated, the average of all the payoffs is ...
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51 views

Put-on-call option confusion

So the question asks: Given a 3-steps Binomial Tree model with $S(0) = 50$, $U = 20%,D = 􀀀20%$, and $R = 5%$. A European call option has the strike price $X = 40$ and maturity time $T = 3$. Also, a ...
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38 views

Effect of different maturity options in delta-gamma-hedging

I read about hedging with options and think i got it. However there is a case am not sure how to handle. Is there any exception in the delta-gamma-hedging-(calculaton-)technique? - say: solve an set ...
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71 views

Options and bond related to convexity

Relevant definition: Assumption 2.1 (No dominance). If the payoff $P$ of a financial instrument is nonnegative, then the price $p$ of the financial instrument is nonnegative. Notation: $T$ - the ...
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53 views

Martingale correction for Andersen scheme with Interest Rate

I have implemented martingale correction to my Andersen scheme for Heston model, as it is in the paper (page 19-22): ...
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225 views

Barrier option : Monte carlo simulation

I am trying to price a Down-and-Out Call using Monte Carlo simulation. The problem is that I get the right price for the vanilla option (same price as the analytic formula of Black and Scholes) but I ...
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98 views

Estimating profit/loss of a Gold Futures option using Theta and Gamma

HELP! I am trying to find how much the underlying price of a gold futures option must move in order to breakeven on owning an option for a day. I was hoping someone versed in pricing options could ...
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45 views

Double no touch option with four barriers

The double no touch (also known as a range binary) is an option with two American barriers. You define one barrier above the underlying asset and one below it. If during the option's lifetime the ...
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151 views

Delta Hedging for 2 Factor Models

If the value of an option at Maturity is what is the off-setting position you take for X and Y, if you are i)Long Call of the option ii)Short Call of the option iii)Long Put of the option iv)Short ...
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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: ...
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83 views

QuantLib: New Instrument derived from VanillaOption + PricingEngine that must work for both VanillaOption and the derived class

The derived class is a Vanilla Option on a Future and I need to specify the expiry of the underlying future which is in general different (later) than the expiry of the Vanilla Option. I have ...
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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 ...
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142 views

delta hedging strategy for OTM option

Wondering how you would think about the following thought experiment - suppose you sell an OTM call option and plan to implement a delta hedging strategy whereby if the price of the stock were to ...
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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 ...
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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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76 views

put call parity for futures options derivation in Hull

In Hull, the following derivation of PCP for futures options: What confuses me is that it is stated that the payoff of the long futures is $F_t-F_0$. The footnote states: the analysis assumes that ...
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143 views

How do you calculate price of non-existant call option on commodity future

I've been stumped on this for awhile now. I'm trying to determine the price of a call option on a commodity futures contract that expires in the future. My issue is that while the future's contracts ...
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100 views

Option writing optimal sell time

When selling options, e.g. a straddle I read often the optimal time for selling options is 30-40 days until expiration. For me intuitively the optimal time would be around one week until expiration ...
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102 views

Is it realistic to assume that the current price of a stock takes into account the probability of it going up or down in the future?

I'm currently reading the following lecture notes: http://www1.maths.leeds.ac.uk/~jitse/math2515/lecture04.pdf On the second page, under the subsection titled "The Risk-Neutral World" it points out ...
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141 views

Numerical Solutions for PIDE

I want to solve an exotic options of PIDE by Numerical Methods.I just focus on the integral part of PIDE and want to underestand some tips on numerical solution of how to numerically solve it. Exactly ...
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81 views

binomial option pricing model - problem with risk-neutral probability

I have a little problem: in the binomial option pricing model, the price of a european derivative security $V_{n}$ satisfies: $V_{n}=[1/(1+r)]*[\tilde{p}*optionUp +\tilde{q}*optionDown]$ where: ...
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60 views

I have some historical options data, and there are duplicates of some options, how to filter them

I have some historical EOD options data for 2013, and there are duplicates listed for same strikes/expirations. I was told that by the provider that this is due to "special one-time cash payout" for ...
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181 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: ...
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541 views

Which risk free rate is assumed by market when pricing american options?

I'm just started with finance, so maybe my question is dumb or answered elsewhere. Please guide me to relevant materials. According to put-call parity more time to expiration means more difference ...