# Tag Info

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"Intuitively, everything else being equal, if a stock has higher drift, shouldn't it have higher probability of finishing in-the-money (and higher probability of having higher payoff), and the call option should be worth more?" All these other answers are focusing on the wrong aspect of the question - it is true that the maths makes the drift drop out from ...

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No, I don't think the raw solution you sketch is going to work. First and foremost, by extracting the cash flows from the bond you're discarding the dynamics of their rate under the Hull/White model you're using. You should both forecast and discount them on the tree; the way to do it correctly is implemented, e.g., in the DiscretizedSwap class (and ...

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It is all in the code:: Rcpp::List rl = Rcpp::List::create(Rcpp::Named("value") = opt.NPV(), Rcpp::Named("delta") = opt.delta(), Rcpp::Named("gamma") = opt.gamma(), Rcpp::Named("vega") = (excType=="european") ? opt.vega() : R_NaN, ...

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Use Ito's lemma on the function $f(x,y) = xy$ and then extract out the diffusion term.

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You need to check them individually and understand how option pricing works. Then you will realize that you want to sell 2 put options Deeply in the money(cheap to buy), buy one call option At the money (a bit expensive) and finally buy an "Out of the money" call option (cheap). So you are trying to finance something a bit expensive by selling something ...

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well you need to specify dynamics for the rates between $$T_{i+1}$$ and $T_N.$ If you make them log-normal then the standard BGM/LMM drift computation applies and you get a state dependent drift. The expectation does not exist in closed form however. (See eg More Mathematical Finance for detailed discussion.)

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