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5
votes
1answer
2k views

The effect of negative interest rates on derivative pricing

I am trying to get an overview of the impact on negative interest rates on financial products (in general). For the time being I distinguished the following products Vanilla options Exotic options ...
8
votes
1answer
676 views

Price functions based on order book events

Assume some equity traded on a given exchange based on an electronic limit open-order book $B$ that makes sequential updates as a function of time $t$. What are "natural" or common price functions $P: ...
16
votes
2answers
9k views

Cross Currency Swap Pricing in nowadays environment

Multicurve setting has now become the new paradigm for vanilla swap valuation. For the record I give here (without getting into too much details) the methodoloy for pricing Euribor3M swaps in this ...
9
votes
3answers
1k views

Implementing a Fast Fourier Transform for Option Pricing

So, I'm in need of some tips regarding a small project I'm doing. My goal is an implementation of a Fast Fourier Transform algorithm (FFT) which can be applied to the pricing of options. First ...
15
votes
2answers
559 views

Which interest rate model for which product

Given the multitude of existing interest rate models (ranging from simple to very complex) it would be interesting to know when the additional complexity actually makes sense. The models I have in ...
5
votes
1answer
466 views

Arbitragefree Pricing: Q vs. P

I read that the Fundamental Theorem of Asset Pricing states, that a market is arbitrage-free if and only if there exists an equivalent martingale measure Q, under which the discounted asset price ...
6
votes
1answer
114 views

FTAP a-la Harrison, Kreps and Pliska

I was reading the papers co-authored by Harrison, Kreps and Pliska, that initiated the formal research on the connection between pricing, martingale measures, arbitrage and completeness. I have some ...
2
votes
1answer
1k views

How to get real-time data for Fama-French model?

For Fama-French model we need SMB (small[market cap] minus big) and HML (high[book-to-market-ratio] minis low). I want to ...
6
votes
1answer
10k views

The difference between Close price and Settelment Price for future contracts

What is the difference between Close price and Settlement Price for future contracts? Is there a defined rule for evaluating the settlement price or different rules are applied for each instrument/...
2
votes
1answer
86 views

Pricing homogeneous Basket Default Swap

Consider a basket with $K=10$ names. Default times of the names, $\tau_k$, are i.i.d. random variables with distribution $P(\tau_k \leq t) = 1 - e^{-\lambda t}$. Suppose that each name in the basket ...
2
votes
1answer
70 views

What is the filtration described?

What is the filtration $(\mathfrak{F}_t)$ encircled below? Is it $(\mathfrak{F}_t) = (\sigma(W_t)) = (\sigma(\tilde{W_t})), t \in [0,T]$? Or is it $(\mathfrak{F}_t) = (\sigma(\hat{W_t})), t \in [0,T]...
0
votes
1answer
75 views

Do FRN's *always* trade on par on reset days, regardless if the issuer's credit quality has changed?

I keep reading that floating rate notes trade on par on coupon reset days. Is this always true, regardless of changes in the issuer's credit quality since the FRN was issued? It seems probably ...