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we should first define some notation before discussing pricing. Let $t_0$ be initial time and $ t_1, . . . , t_M$ be pre-specified exercise dates with $t_0 < t_1 < · · · < t_M = T$ , the final maturity, and $Δt = t_m−t_{m−1}$. Without a loss of generality it is assumed exercise dates are equidistant. To price a Bermudan option, its value is split ...


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This is pretty much exactly the problem description for a standard over-the-counter FX option pricing tool from 10-20 years ago. (For more modern contexts, the data would almost surely contain also 10 delta RR and BF, and perhaps more points as well.) The best solution is, don't build this yourself, but instead use a prexisting tool. FX conventions are ...


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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 ...


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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 ...


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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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