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you should have a look at implied probability densities. They do exactly what you are asking - extracting the pricing density from option prices. This is done by differentiating the option price with respect to the call. Here are two links. The first one explains the procedure the second one deals with where such densities can be applied Implied state ...


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Asian options: strike is average of underlying over tenor. Underlying is stochastic. Options with kock-ins/knock-outs: Underlying is stochastic and may cross the kock threshold as it evolves. Option value depends on this cross or lack thereof (boolean). Options on Options, too. Motivations for Asian options you can google. Kock-ins and knock-outs ...


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Answering my own question: All the indicated numbers as obtained from ICAP need to be divided by 100, as they are percentages The OptionletStripper1 takes an IborIndex, which should have a tenor equal to 1Y. I had set it to 6M, and that seemed to cause problems Ouch!


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One approach is to take the entire option chain, and calculate the prices for adjacent butterflies along the chain. The risk / reward of each of the butterflies represent the empirical probability that the market is pricing for the underlying to move between the strikes of the butterfly. To make sure it is a proper probability distribution, you will want ...


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When you have a power plant, your gain (financial) is Power Price - coef1 * Gas Price - coef2 * CO2 Price - other cost. So if you want to secure your supply, you have to be Long Gas and CO2 and Short Power. Physical commo is the opposite, you are short gas and long Power (when the Power price rise, you earn more money). Financial strategies must be ...


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As alexis0587 said, with any gross producer margin (GPM) spread, you capture the differential of outputs less inputs since that reflects your profit for running the plant: $$\pi = p_e-p_{ng}-p_h-\kappa$$ where $\pi$ denotes profit, $p_e$ electricity price, $p_{ng}$ energy-equivalent factor adjusted natural gas price, $p_h$ equivalent factor adjusted ...


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They are not referring to any implied volatility but actual volatility, i.e. statistical standard deviation. The price volatility is the annualized standard deviation of bond price changes and the yield volatility the annualized standard deviation of bond yield changes. These quantities are usually estimated using a historical estimator. If you have n ...


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I believe your example describes the payoff of a simple spread option. Some may argue that in reality this spread option has zero strike: $$ (S_T(\omega) - K_T(\omega)-0)^+ $$ Which leads us to the question: What exactly strike is anyway? Is it uniquely identifiable term in each payoff function? No It isn't.



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