# Tagged Questions

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### Documentation of the ISDA CDS standard model

I have to validate the use of the ISDA CDS standard model. Don't understand me wrong - I am sure that the ISDA model is "good" I just need to know what it is in detail. I can download an Excel-...
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### Question on an approximation in pricing formula

I am reading the book An Introduction to Financial Option Valuation. The following on page 58 makes me confused: For the formula: $\exp \left\{ -1.96\sigma \sqrt{t}+(\mu-0.5 \sigma^2)t \right\}$,...
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### How to price an exchange option using B&S framework?

Consider a market composed by two stocks whose prices $X$ and $Y$ are given by B&S diffusion: $$dX_t= \mu X_t dt+ \sigma X_tdW_t$$ $$dY_t= \mu Y_t dt+ \sigma Y_tdB_t$$ Supposing the market is ...
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### 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 $1 d$- ...
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### 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, ...
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### 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 Black-...
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### 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 ...
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### 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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### 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 ...
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### 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 ...