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5

You are essentially dealing with two options: $EU\,{Warrant}(S_t) = BlackScholesCall(S_t)+CompoundCall(S_t)$ The Black-Scholes formula is known, and Compound Option pricing has various approaches in research which you may find.


4

Why does USD based security valuation have to give a thing about what London Banks think? Your question is based on false premises: the USD Libor is not determined by polling London based banks as you seem to believe, but banks on the London money market. The difference is important, as there are—of course—banks which are not based in London and active ...


2

The importance here is that it actually does not matter in what time zone or market the libor rates are set. Key is that it is supposed (!!!) to be a gauge at what rate contributing banks could borrow funds at in the inter-bank market. Like you can go to any African country and borrow or lend US dollar, so can any Japanese, European, or American bank borrow ...


1

If you know the stock will finish above the strike, then the call option becomes a forward contract since it will always be exercised. We therefore price it as a forward. Its value at maturity is $$S_T - 60.$$ We can synthesize $S_T$ with one unit of stock costing $70.$ We can synthesize $60$ with $60$ ZC bonds which costs $60/1.055$ since the yield is ...


1

The intrinsic value is $70 - $60. However, we don't know exactly what the stock price will end up in a one-year time. But we know that it it is the best estimate for the future price in one-year. Profit in one-year = ($70 * 1/D - $60) where D is the discount factor. This profit needs to be discounted: $70 - $60 * D. You should be able to relate the ...


1

Don't look at the structure as consisting of 3 parts (i.e. a forward plus a cap plus a floor) look at it as 2 options one bought with the Floor as Strike1 and one sold with the Cap as Strike2. That way the time value changes of bought and sold option should offset - which by the way they will already do right now even wit the forward since that does not have ...



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