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Apr
10
comment Derivation of Kolmogorov Forward Equation
looks light straight out of Shreve's homework assignments ;-)
Apr
4
comment How to optimally hedge construction loans with interest rate swaps?
I always found the world of finance to be a lot smaller than ever thought ;-)
Apr
2
comment How to optimally hedge construction loans with interest rate swaps?
Is this homework or a case study assigned in school? I could bet I have come across a very similar story before.
Apr
2
comment Value a structured note with Black-Scholes
No worries. By the way I meant terminal index not stock price.
Apr
1
comment Value a structured note with Black-Scholes
No, the terminal stock price. Come on, a little work on your own does not harm you, and it supports the original intend of doing work at home (homework).
Apr
1
answered Why future (forward) volatility smile is important to path dependent option?
Apr
1
comment Implied Volatility Calculation
This question has been asked before: quant.stackexchange.com/questions/7761/…. Use Newton Raphson to solve for the implied volatility.
Apr
1
comment Value a structured note with Black-Scholes
@PLui, I edited my answer and added point "B". This should be plenty enough to get you to the answer.
Apr
1
revised Value a structured note with Black-Scholes
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Mar
31
comment Value a structured note with Black-Scholes
Plui, to answer your question knowledge of what drives the price of the index is essential. Unless of course this is a homework or take home exam and the lecturer asked you to assume that the payoff can be modeled via BS.
Mar
31
comment Value a structured note with Black-Scholes
@MarkJoshi, I guess I am confused then how 1000 + 2.5*(Index(T)-1100) can be the same as 2.5(Index(T)-1100). From PLui's confirmation the payout when S(T)>1100 seems to be the former payoff. Secondly I disagree with you that this can generally be valued using BS. How would you assert this is possible if you do not even know what the Index is about and whether the Index price evolution can be modeled with an identical stochastic process than what BS implies? For what its worth the index could be an interest rate.
Mar
31
comment Value a structured note with Black-Scholes
@MarkJoshi, when you say "you'll get something close to 1000", do you mean the price of the note should be close to 1000? I do not follow the rational if that is the case because unless you know the "risk free rate", dividends (or other yields, after all it is an index not a stock) as well as the volatility it would be hard to tell, imho. Also, should the payoff (if ST > 1100) not be 1000 + 2.5*(ST-1100)?
Mar
31
revised Value a structured note with Black-Scholes
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Mar
31
revised Value a structured note with Black-Scholes
added 18 characters in body
Mar
31
comment Value a structured note with Black-Scholes
Can you please first confirm that the payoff function is correct?
Mar
30
answered Implied Vol vs. Calibrated Vol
Mar
30
answered Value a structured note with Black-Scholes
Mar
27
answered What is the difference between a benchmark yield curve, funding curve and a basis spread curve?
Mar
27
comment The use of GARCH
@lehalle, sure that would be nice to have, maybe you could write up an answer that includes all that? I am sure the community will attach a fair value to your answer and also assess a relative fair value to this answer as well.
Mar
26
comment Impact of Implied skew variations on future prices
As the paper correctly pointed out, conventional skew measures are often influenced by the volatility level and kurtosis. You can start with a simple OLS and also try what a weighted least-squares approach. You may also want to look at lead-lag effects.