Hot answers tagged

3

well there are lots of things to get right... first you need to the non-callable version right, to get that right requires getting the smile right since a callable range accrual is really just a bunch of digitals with timing effects. these days discounting and forwarding are done with different curves so you'll need to get that right too. then you'll ...


1

This question is extremely interesting and not that straightforward. See answer here. From a financial perspective this is very much like pricing an American call (stopping rule = intrinsic value from exercice (i.e. current cash earned) > continuation value (i.e. what you can expect to gain). Note that you can never win more than 13 nor lose (at worst you ...


1

The most rigorous approach I have seen so far eliminating the risk premium is this one: Emanuel Derman: The Perception of Time, Risk and Return During Periods of Speculation (2002) Equation 2.23 on page 11 derives $\mu$ ~ $r$ but it only holds in the limit when you hypothesize countless uncorrelated stocks in a diversifiable market. Still an interesting ...



Only top voted, non community-wiki answers of a minimum length are eligible