The process of determining the price - the value - of an asset.

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How can one value a Bermuda option?

A Bermuda option allows early exercise at predefined dates, e.g. at maturity equal to $t_1$, $t_2$, $t_3$,...; hence , would its value be the sum of 3 discounted European options with 1-year ...
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13 views

Yield for valuation of illiquid corporate bond

I am trying to value a illiquid corporate bond issued at a discount to face value by a privately held company in India. The corporate bond is a sinkable bond (amortizing principle) with coupon rate of ...
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2answers
2k views

Calculate Average Price, Cost, (Un)Realized P&L of a position based on executed trades

We have built an algorithmic trading software and need to calculate the following parameters for each position in our portfolio. Average Price Cost Realized Profit & Loss Unrealized Profit & ...
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1answer
70 views

Using FX ATM/RR/BF Volatility to Estimate Smile

Suppose $S$ is some FX rate, EUR/USD say, and $\sigma_{S}(K,T)$ is the implied volatility for some option written on $S$, sourced from the surface $\sigma_{S}(\cdot,\cdot)$ (alternatively, consider ...
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157 views

Pricing a call when minimum stock price above strike with certainty

I am editing this question because it was originally unclear, and I didn't get the answers I was hoping for. In my finance book I have the following question T-bills currently yield 5.5 percent. ...
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23 views

Literature on “Risky Risky” Method

Trying to get some information/examples on a method called "risky risky" in the context of equity option/convertible bond valuation.
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71 views

Lease Accounting / FX Embedded Derivatives: How to Value Floor / Cap Optionality Features

Suppose you have a lease agreement where the functional/domestic currency is RUB and the currency on which the lease is written USD. Let $S$ be the USD/RUB exchange rate (# of rubles per 1 dollar). ...
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32 views

Please recommend a book regarding Monte Carlo simulation in OAS

I couldn't find a book that explains in details how to use Monte Carlo Simulation to generate a number of interest rate scenarios. And then based on the interest rate scenarios, how to calculate the ...
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34 views

Complicated American style option contract with numerous non-standard features (simultanous exercise, additional premium, etc.)

I want to value the following contract for times $0<t<T$, i.e. determine $V(t,\cdot)$ where $\cdot$ refers to all other dependences (strike, spot, volatility, etc.). The contract is long and ...
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2k views

What are some quantitative approaches to value investment?

As a developer and statistician, I consider value investing to be a statistically sound investment strategy. I've read a few books on the area but I am still not clear on valuation measures. So I ...
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15 views

Source on pricing / valuation of trust preferred securities?

Is there a good source on pricing / valuation of trust preferred securities? I used GOOGLE, GOOGLE SCHOLAR and NEW YORK PUBLIC LIBRARY, but the results were meager. Found book Handbook of Hybrid ...
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42 views

Value of a portfolio with a collar option and shares as function of a log return …?

I could use some help with a question I've been stuck with. It's stated as follows, A private investor owns a large quantity of shares of a single stock and is worried about the position being too ...
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72 views

Asset true price determination, quoted on 2 exchanges

There is a stock that is quoted on 2 exchanges and I'm thinking about ideal (from market micro structure point) method for calculate true value of that asset. Assuming that venue with volume traded ...
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102 views

Valuing a warrant on a warrant

How would you go about valuing a European warrant that entitles you to a) 1 share of a company and 2) 1 warrant on that same company?
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4answers
6k views

Rationale for OIS discounting for collateralized derivatives?

Can someone explain to me the rationale for why the market may be moving towards OIS discounting for fully collateralized derivatives?
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2answers
212 views

Why is USD LIBOR used for USD denominated securities?

I am just starting on Interest Rate Swaps & curve construction. While reading few materials on Interest Rate Swap, it's indicated for e.g. "Floating Coupon Index: 6 month USD LIBOR". LIBOR is ...
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1answer
172 views

Valuation of Cox-Ross-Rubinstein Model

We have a Cox-Ross-Rubinstein model with parameters $u$ ("up"), $d$ ("down") , $r$ (interest rate) and $q$ (equivalent martingale probability) $(q=(1+r-d)(u-d)^{-1})$ . We have a contingent claim with ...
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1answer
141 views

Best practice approach for calculating the PE-ratio

I am trying to calculate the historical PE ratios of a stock, but which date should I use to get the stock price in calculating the PE ratio? My current approach is to use the stock price of a day ...
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44 views

swaps valuation

I am asked to solve the marking to market value(MtM) of a swap, unfortunely i´m having big troubles finding the solution, it´s a 5.5% (vs. LIBOR) 10-year swap, The notional is 500 mio USD and LIBOR ...
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67 views

How is the redemption right on delisting of underlying shares held by holder in the convertible bond valued?

As title, If there is no delisting constraint, then I can treat the redemption right as the put right on the convertible bond. If there is redemption right on delisting, what is the conventional ...
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103 views

Best method for determining the market value of a stock before it is issued

I am attempting to determine the hypothetical market value of a stock for a company emerging from bankruptcy as of a date prior to actual the issuance of the stock. For example, let's say the formerly ...
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57 views

Valuation of Mortgage Backed floating notes

Does anybody have experience in valuation of mortgage backed floating notes? I have task to value the 4 different MBS floating notes. I know that it should be done through montecarlo, refinancing ...
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3answers
303 views

Risk prediction based on financial statements

I have a profit loss statement and balance sheet with the following fields: Example P&L Turnover420,363 - Cost of sales £118,730 £140,169 - Gross Profit ...
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209 views

Pricing a Power Contract derivative security

I'm trying to price a "power contract" and would appreciate guidance on the next step. The payoff at time $T$ is $(S(T)/K)^\alpha$, where $K > 0$, $\alpha \in \mathbb{N}$, $T > 0$. $S$ is ...
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1answer
117 views

Exposition of Growth in a Perpetuity

Something that's bugged me since I've ever learned anything about finance: Philosophically(?) speaking, why does growth subtract from a perpetuity's return? I know the mathematical explanation, but ...
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768 views

Credit Valuation Adjustments — computation issues

I'm currently working on my Masters project related to accelerating Greeks computations for CVA on mixed interest rate portfolios. I would like to know about the status of technology for CVA and its ...
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4answers
206 views

Are there any valuation models of securities that use hyperbolic discounting?

To quote Wikipedia: In hyperbolic discounting, valuations fall very rapidly for small delay periods, but then fall slowly for longer delay periods. This contrasts with exponential discounting, in ...
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423 views

Creating an n-factor Certainty Equivalent Discounting Formula

Brealey & Myers provide a certainty-equivalent version of the present value rule, using CAPM, as follows: $$PV_0=\frac{C_1 - \lambda_m *cov(C_1, r_m)}{1 + r_f}$$ $PV_0$ - Present Value of cash ...
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2answers
430 views

Which interest rate should I use for the discount rate in real-world pricing?

Suppose I want to compute the time value of money (present value, future value, etc). I need to put an interest rate into the calculation. Which real world interest rate would best be used here, ...
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249 views

Value of option-free instruments with a short-rate model vs the spot curve

You can calculate the value of an option free bond or swap by using the spot curve and discounting cashflows accordingly. Alternatively, apparently you can use a single-factor short rate model in a ...
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1answer
1k views

How would I value a perpetual bond with an embedded option?

I am trying to work out how to value the following transactions. It should be straight forward, since it breaks down into a series of well known instruments, yet I am not sure how to evaluate it: ...
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3answers
454 views

How are prices calculated for commercial/residential mortgage-backed securities?

What is the theoretical/mathematical basis for the valuation of [C]MBS and other structured finance products? Is the methodology mostly consistent across different products?
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1answer
606 views

Can options volume have an impact on the price of the underlying asset?

Can options volume affect the underlying asset price indirectly? I know that options buying/selling does not directly affect the price of the underlying asset (rather, the asset price contributes most ...
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2answers
193 views

How do earnings estimates respond to changes in underlying fundamentals and economic conditions?

Sell-side analysts' earnings estimates for individual companies, typically reported by I/B/E/S, are a key ingredient to many quantitative models. However, revisions to analyst estimates tend to lag ...
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1answer
311 views

Which valuation measures are most useful for equity market timing?

Competing academic studies, such as Asness's Fight the Fed Model and Lee, Myers, and Swaminathan's What is the Intrinsic Value of the Dow, offer differing answers to the question of whether equity ...
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1k views

What are the limitations of Gaussian copulas in respect to pricing credit derivatives?

The practice of using Gaussian copulas in modeling credit derivatives has come under a lot of criticism in the past few years. What are the major arguments against using the copula method in this ...