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  • 0 posts edited
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  • 254 votes cast
Mar
25
comment What is the fair price of this option?
I think the key point here is "perpetual".
Mar
25
comment Why the Black-Scholes formula can be used in the real world?
@vonjd, I have not voted on your answer but your comment " In a way if you priced derivatives with real world measures you would double count risk preferences because these are already included in the underlying" is factually incorrect. One should arrive at the same price of a derivative if one priced it via real-word probabilities and discount factors, given one knew them. Maybe that is why some users took issue with your answer. Just a hunch...
Mar
24
comment Rich Volatility, Poor Volatility
care to vote or comment on why any of the provided answers is not sufficient?
Mar
17
comment Rich Volatility, Poor Volatility
all I know is that those are pretty much how prop vol traders price volatility. Of course one can sell vol because its high and buy because its low (or vice versa), but I find that a losing proposition. Volatility is a financial product like everything else, there are factors that impact volatility and some of those are the volatilities of impacting fundamental factors. Take oil for instance: If implied volatility of supply disruptions, vol of inventories, and vol of other fundamental factors are low then high implied vol levels of oil are most likely mispriced.
Mar
16
comment Rich Volatility, Poor Volatility
Interesting thoughts. Though is it fair to conclude from your comments that you do not find value in determining the explanatory "variables" into vol regime shifts? For example, volatility in delivery costs or times, volatility of oil supply, changes in political volatility in regions that impact oil prices generally, volatility in demand for oil end-products, volatility in weather conditions, and the like?
Mar
13
comment Where can I find literature (books, articles, etc.) about basic HFT / arbitrage strategies?
Let's not make this personal please. I read through your answer and I just did not feel it addresses the question and I provided a detailed explanation of my rational. Nothing personal.
Feb
25
comment Why implied volatility is less for the back month option even though the back month option is more expensive
quant.stackexchange.com/questions/4936/…, and the fact that an option price is not only a function of implied volatility.
Feb
21
comment Under what circumstances would one want to delta hedge a straddle
A straddle at initiation does not have to be exactly delta neutral, not even an ATM or ATMF one. To make it delta neutral, it depends on the exact underlying we talk about and hence how you set the strike of the straddle. You can trade the gamma in the straddle and buy and sell the underlying during the life-time of the option.
Feb
21
comment Under what circumstances would one want to delta hedge a straddle
your risk is your time decay, for example. It is a real and relatively estimable risk but nonetheless a risk. Too frequent hedges can become costly and can make that exercise costlier than the benefit it pursues.
Feb
20
comment Under what circumstances would one want to delta hedge a straddle
That is not entirely accurate. Even if you do not "have a view on the direction of the underlying" it can still be advantageous to not delta hedge. The real question is whether the risk outweighs the cost of the hedge or not.
Feb
20
comment Under what circumstances would one want to delta hedge a straddle
Your question is not clear. Are you asking about a zero delta exposure at contract initiation or during the life time of the position?
Jan
26
comment When are implied and real world parameters the same?
@NathanMeibergen, I saw the answer and I do not fully understand why you need a derivation to prove your claim. An the same token, the one and single reason a risk-neutral probability is different from real probabilities being the existence of risk premiums in the real world
Jan
26
comment When are implied and real world parameters the same?
@Student T, All right, that nonetheless does not change that the answer is pretty obvious. Not sure an academic paper or derivation is necessary to prove that, but then I am addicted to simplicity rather than academic hoops.
Jan
26
comment When are implied and real world parameters the same?
I am afraid I do not fully understand your question. Yes, of course implied and future realized expectations are identical in the absence of risk premiums. They are also identical if the market priced future expectations correctly which is rarely if ever the case. What is your real question?
Jan
26
comment generalized black scholes
Try to derive d(ln S(t)) and see where that gets you...
Jan
26
comment generalized black scholes
Can you show some of the work you have done and where you are stuck? This is not a homework site, please show a bit of effort and I am happy to try to help and I am sure others as well...(I am saying that because your equation shown looks awfully similar than the notation in Shreve's book "Stochastic Calculus for Finance II". Except, one time you attempt denote tau with "T-t" the other with τ.
Jan
26
comment generalized black scholes
Just plug in the deterministic function of t and solve the equation. It is not that hard.
Jan
26
comment InteractiveBrokers server outage every Saturday
a) Attempting to connect to a different server via jts.ini will not change anything. IB will route you back to the server they have set for you on their server side. You need to request a server change and only then will your system connect to the changed sever address. b) IB does not provide full access throughout the weekend for historical software design reasons. It works for them and most every client which is why I do not expect this to change any time soon. The daily reset is actually more inconvenient to handle and again this originates from their original software design.
Nov
28
comment Longer term average probabilities of fills at fx ECNs?
I did not expect a specific number, I guess I just wonder what assumptions some of the underlying models make or how people model fill probabilities when testing new algos. I will edit my answer accordingly, thanks.
Nov
7
comment Implied volatility and pricing of vanilla options
...be able to extract risk adjusted value. I do not have more to add to this except maybe mentioning that BS does not itself prescribe how you are to hedge an option position but its derivatives do prescribe how to hedge specific risks.