The pricing-formulae tag has no wiki summary.
3
votes
1answer
123 views
Foward-start option pricing
Consider a probability filtred space $(\Omega, \mathcal F, \mathbb F, \mathbb P)$, where $\mathbb F = (\mathcal F_t)_{0\leq t\leq T}$ satisfing the habitual conditions and is generated by $1 d $- ...
7
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2answers
129 views
Is there a comprehensive reference book on US fixed income conventions?
In Canadian fixed income markets there is a nice handbook called Canadian Conventions in Fixed Income Markets (PDF). It contains detailed market standard pricing formulas for calculating prices, ...
5
votes
2answers
358 views
Why does the future price dominate the forward price and why doesn't the long rate fall?
There are two questions left about the book Term Structure: A graduate Course by Damir Filipovic, which bother me. The first one is about the Theorem, that the long rate never falls (p. 108). Why is ...
1
vote
1answer
93 views
How to determine the prices computationally?
As in previous question mentioned, I attended a course in interest rate theory (I'm studying math). Now I have a question how one calculate this prices in reality. Suppose we assume a simple model for ...
4
votes
3answers
302 views
Is it possible to demonstrate that one pricing model is better than another?
Take the classic GBM (geometric Brownian motion) model for equities as an example:
ds = mu * S * dt + sigma * S * dW.
It is the basis for the classic ...
7
votes
3answers
894 views
How to obtain true probabilities from Black-Scholes?
How to obtain true probabilities from Black-Scholes option pricing equation?
Suppose, that we know risk adjusted discount rate for the underlying asset (the drift term in the physical measure) and ...
4
votes
2answers
683 views
Market Value of a CDS
I need to model the market value of CDS in a portfolio. My current approach is to calculate the present value of the future spread payments - does anybody have a better idea to solve the problem?
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5answers
1k views
Formal proof for risk-neutral pricing formula
As you know, the key equation of risk neutral pricing is the following:
$\exp^{-rt} S_t = E_Q[\exp^{-rT} S_T | \mathcal{F}_t]$
That is, discounted prices are Q-martingales.
It makes real-sense for ...
6
votes
1answer
406 views
How do equivalent martingale measures arise in pricing?
I'm studying for an exam in financial models and came across this question:
"An agent with $C^2$ strictly increasing concave utility $U$ has wealth $w_0$ at time 0, and wishes to invest his wealth in ...
5
votes
4answers
1k views
Predicting Price Movements on a Betting Exchange
On a betting exchange the price (the odds that an event will happen expressed as a decimal, 1/(percentage chance event occurring) of a runner can experience a great deal of volatility before the event ...
5
votes
1answer
178 views
How do bond pricing formulae differ between the US, UK and the Euro zone?
Let's restrict the scope of the question a little bit: I'm interested to learn about major differences in pricing formulae for nominal government bonds. The pricing formulae for inflation-linked bonds ...
